Having started three businesses, two of which successfully went public, founder of Vivo Capital Frank Kung set foot in the biotech sector in the 1970s. Thanks to Kung's decades of experiences in investing in biotech firms in the US and Greater China, Vivo Capital has made itself the largest biotech venture capital fund in Chinese communities worldwide, managing over US$1.7 billion in capital including the Taiwan Silicon Valley Technology Fund. Furthermore, Kung often attends the Taiwanese government's Bio Taiwan Committee meetings and offers advice for the development of Taiwan's biotech industry.
Know the difference between healthcare products and consumer products
According to Kung, biotech products include healthcare products and consumer products. Investors must have a clear understanding on the difference between the two to avoid making blind bets. Many investors don't have the slightest idea about the nature of business of the biotech firm they invest in. They are merely betting on the assumption that it will be acquired by a big enterprise later on. Such wishful thinking can be problematic. A major difference between healthcare products and consumer products is the former have to undergo a series of tests and obtain approval from government authorities, such USFDA or Taiwan FDA, in order to go to market while the latter, such as dietary supplements and facial masks, have to overcome challenges in marketing and product differentiation. Both the investors and the entrepreneur need to have a clear objective as to whether the startup they are funding or founding is selling a product or technology. If it is selling a product, they must know whether it is a healthcare product or consumer product. Only by having a clear picture can investors further assess the potential and market value of the startup.
In talking about healthcare products, Kung pointed out Taiwan's current conditions are rather unfavorable for startups endeavoring on healthcare product development. There are three elements to startup success - technology, talent and capital. Taiwan must be able to eliminate obstacles with respect to these three elements in order to foster a flourishing biotech industry. First of all, in terms of technology, Taiwan has very few firms specializing in making innovative healthcare products. Many pharmaceutical firms only produce generic drugs or new forms of old drugs. Strictly speaking, they are not working on biotechnology applications, let alone making innovations. As such, for a Taiwan biotech startup to succeed, it must have unique technology to be able to establish market presence.
With respect to talent, Taiwan lacks the human resources to develop healthcare products. In fact, Taiwan has plenty of professionals doing medical research but few of them have the capability to commercialize research results. Rather than recruiting medical scientists from abroad to do product research, Taiwan should seek specialists in commercializing healthcare products. This will be more helpful in pushing the development of Taiwan's biotech industry, suggested Kung.
As to capital, it is not easy for biotech startups to obtain funding in Taiwan. Taiwan's venture capital funds mostly invest in mature companies and impose more stringent requirements on startups. Furthermore, having accumulated more than a decade of experiences in funding biotech businesses, investors have gained a more in-depth understanding on the industry but the capital funneled into biotech firms is still insufficient. As investors are still drawn to pour fund into firms with promising technology, Series A funding is generally not a problem. However, despite lower technological risks in Series B funding, startups face the challenge as to how to enhance their market value and find experienced professional investors to support them. What's worse is that regulatory restrictions have deterred foreign investments in Taiwan's biotech businesses. As a result, the third and fourth rounds of financing become even more challenging, which also makes investors more conservative during earlier-stage funding.
The development of healthcare products is a long and risky process. It's time consuming and capital hungry. For example, it took TaiMed Biologics 10 years to have its new drug Trogarzo approved by FDA for the treatment of multidrug resistant HIV-1 infection.
Taiwan should create a healthy investment climate and relax regulatory control
Take Vivo Capital for example. The biotech firms that Vivo Capital invests in mostly already have their new treatments in clinical trial with human experiment data and case studies available so they can better spur investor interests. Although there are many medical centers and medical professors leading research projects in Taiwan, without a good judge of talent, these projects mostly end up as papers in academic journals and have no chance of being assessed for their commercialization potential. Kung advises that entrepreneurs aspiring to biotech development should take some time to study market needs so that they are able to come up with the best startup idea.
The supply of talent is a big challenge to biotech industry development. Although many biotech research organizations have instituted technology transfer programs, most of them are just following the trend without extensive know-how. The lack of talent specializing in commercializing healthcare products is Taiwan's greatest weakness in its endeavors to promote biotech industry development, reiterated Kung.
In terms of technology, it will be a long way to go for Taiwan-based firms to develop new biotech products from scratch. It may be a better idea to bring in validated technologies from abroad. However, the basic consideration is still whether there is a favorable environment and incentive fostering biotech development. What the government can do is to relax regulatory control and create a healthy investment climate, rather than using state funding to support a few biotech firms, which can only generate short-term benefits but not sustainable long-term growth for the industry.
Nevertheless, the outlook for the Taiwan biotech industry is not all bleak. Taiwan-based firms still have opportunities in consumer biotech products. For example, Fitbit took the market by surprise with its success at wearable devices for healthcare purposes. It is even leading the competition by a widening distance. If Taiwan-based firms set a goal to develop consumer biotech products, they must have innovative ideas, know the competition well and realize what it takes to penetrate into the market. They also need to overcome technological barriers so that their products can cater to consumer preferences. Kung emphasized entrepreneurs endeavoring on biotech development need to stay on top of market conditions and establish a clear market position. Only by doing so can they minimize the risks when starting a new business.
(Editor's note: This is part of a series of interviews focusing on the problems and opportunities that Taiwan-based startups face. The interviewees are venture capitalists and angel investors from Silicon Valley and Taiwan.)
Frank Kung, founder of Vivo Capital
Photo: Frank Kung