part0010

This chapter focuses on a very specific dimension of commercial biotech development—regulation—and the ways in which the state in Korea, Taiwan, and Singapore has both contributed to and attempted to manage regulatory uncertainty. Regulatory considerations are an important aspect of the biotech innovation process, and the extent to which regulatory certainty, predictability, and clarity are achieved go a long way toward determining commercial returns and health care outcomes. By regulation I mean the enforced standards of appropriateness that govern a broad range of market and premarket activities, including R&D, technology commercialization, and market access. Regulation is simply an inherent aspect of the entire biotech innovation enterprise. And to that end, states matter. Regulatory regimes are ultimately the domain of the state, though as I show in this chapter, they can be intensely contested within and among nonstate actors.

For obvious reasons, regulation, in practice, is a source of temporal uncertainty. Regulation makes the innovation process longer. The very existence of premarket and market regulations poses potential obstacles for transforming an upstream discovery into an applied technology and eventually a commercially viable product or service. However, it is not the fact that regulatory regimes exist which is the problem for bio-industry stakeholders; regulatory standards, as I have suggested, are simply a given. Rather, the problem of temporal uncertainty is exacerbated by regulatory uncertainty within the state. Regulatory conflict and interest unalignment, particularly among state actors, can impede the innovation process further, intensifying rather than mitigating biotech’s myriad uncertainties. Therefore, the problem for would-be commercial biotech innovators is not the fact of regulation itself, but rather the added obstacles that result from regulatory uncertainty and inconsistency.

The regulatory state can be inconsistent, in both its policy content and the implementation of regulatory regimes. As Cynthia Fox concludes in her study on stem cell R&D, the “world has accumulated knowledge about the “enormous” potential of stem cells with “remarkable speed” . . . Knowledge may well accumulate faster with time. Ignorance will undoubtedly fester and spread just as rapidly. Regulations established to best utilize this knowledge and temper the ignorance will sometimes be too restrictive, sometimes too loose.”1 The anticipation of inconsistency and uncertainty is not surprising given how regulatory standards in any industry, and especially new industries such as biotech, are continually evolving. Regulation and the regulatory “sciences” are dynamic, constantly ebbing and flowing, shaped by political, social, and economic forces as well as informed by new discoveries in science. For recent entrants into new sectors, such as in Asia, the development of regulatory regimes involves more often than not a process of institutional catch-up, in which various aspects of regulatory regimes are implemented at different times, experimented differently across sectors, and constantly revisited and revised.

The “regulatory state,” David Levi-Faur explains, eludes neat categorical state types. It is not simply the case that regulatory regimes are consistently of liberal, mercantilist, pluralist, or transnational types. The regulatory state is not monolithic, and it can at once encompass characteristics of all of these categorical state types, “a complex reality [which] is often overlooked from the extreme positions of the ‘state debate.’”2 Regulatory regimes, rather than being coherent and comprehensive wholes, are a reflection of contending industrial, transnational, domestic political, and economic pressures. Regulation thus entails the multiple stakeholder state, in which various interests inside the state apparatus attempt to influence regulatory policy outcomes. The regulatory state is a site for intense political contestation, where the push-and-pull of contending interests and priorities exacerbates rather than ameliorates regulatory uncertainty.

The state in Korea, Taiwan, and Singapore has experienced both interest alignment and unalignment in the regulation of the biotechnology sector. In some areas of the regulatory process, decision makers in Korea, Taiwan, and Singapore have been able to align various interests relatively easily, providing a fair degree of regulatory clarity and certainty. This is best exemplified, as I show, in the early regulation of clinical R&D. States have also established a relatively coherent stance in bioethics regulation, the second example looked at in this chapter, though only after considerable contestation among state and nonstate actors. The state in all three cases has largely failed, however, to resolve intrastate conflicts about the regulation of health technology markets, conflicts that are between state actors with contending priorities, expertise, and regulatory policy interests. These three regulatory regimes, governing clinical R&D, bioethics and markets, are explored in detail in this chapter.

Regulation can both constrain and facilitate technological innovation. In this respect, then, regulatory policy is an integral part of a state’s industrial policy mix. It is generally accepted, for instance, that a state’s capacity to enforce intellectual property rights is a key factor in attracting foreign investment and R&D activities, whereas its absence is an obstacle to innovation. Beginning in the 1990s, the states in Korea, Taiwan, and Singapore revamped their existing intellectual property rights regimes, which resulted in significant increases in innovative R&D, most notably in transnational R&D activities. Regulatory reforms in financial markets, especially with respect to the capitalization of venture capital funds, have also encouraged growth in the number of technology venture firms. Changes to regulations governing public-private R&D collaboration, such as those that lifted obstacles to university-industry linkages, have prompted publicly funded researchers (such as university professors) to engage the private sector. Korea’s 1997 “special law” (described in Chapter 3), which allowed university professors to form private biotech venture firms and provide consulting services to industry, is a good example of how regulatory policy functions as de facto industrial policy and thus a critical part of a nation’s innovation system.

With respect to the health technology sector more specifically, food and drug regulators are credited with both nurturing and stifling the pharmaceutical industry. Regulatory processes matter a great deal when it comes to determining commercial outcomes in drug discovery and development. The U.S. Food and Drug Administration, for example, is periodically criticized for lax regulatory oversight that has led to the approval of unsafe foods and drugs; such changes to approval processes have been initiated because of pressure from industry, which asserts that regulatory stringency stifles the development of innovative health technologies.3 Recent corruption scandals involving the Chinese state FDA, which led to the execution of the former agency head in 2008, have stunted investor confidence and commercial interests in the Chinese market and immediately raised concerns about Chinese exports of food and health products.

Both of these examples demonstrate the complex relationship between regulation, innovation, and the market. They show how regulatory policy plays a significant role in shaping the course of commercial health technology and biotech industry development. They also illustrate how regulatory policies are inextricably tied, in complex ways, to both market incentives and nonmarket considerations such as consumer and patient safety. For innovative products and services to be commercially viable, they must satisfy market demands as well as adhere to tough and increasingly globally harmonized regulatory standards. Making and meeting such regulatory standards is thus critical for policy decision makers, firms, and researchers engaged in commercializing R&D.

Again, regulation itself is not the problem. In the life sciences sector, regulation is simply a part of doing biobusiness in global markets. What exacerbates commercial biotech’s temporal uncertainty, however, is regulatory inconsistency and unpredictability. The examples of the U.S. FDA and the Chinese state FDA demonstrate how regulatory inconsistency—the waxing and waning of regulatory policy and the politics therein—can have profoundly negative effects on commercializing biotech. On the other hand, regulatory clarity and certainty are important to bio-industrial development. As one health policymaker in Singapore explained, it is not so much the content of regulatory regimes that matters most for facilitating cutting-edge R&D, as actors can adjust and learn to adapt; rather, what is important is that policies be consistently enforced, transparent in their creation, and unequivocally clear. Put simply, biotech stakeholders demand regulatory certainty. The evidence from Korea, Taiwan, and Singapore suggests that regulators there have been quite effective in harmonizing regulatory regimes that govern at least one aspect of the life sciences innovation process: clinical R&D .

One area of commercial promise in biotech, particularly for recent entrants without the capital and expertise to do lab-to-market biotech commercialization, is in premarket clinical R&D. Major efforts are currently under way in Asia to capture some market share in this high value-added biotech niche. Singapore’s recent biotechnology plan explicitly focuses on translational R&D, specifically in clinical applications of upstream life sciences research. The example of TaiMed discussed in Chapter 4 highlights Taiwan’s strategy to capture value in clinical R&D activities related to the drug development process. Meanwhile, clinical R&D, and notably the lucrative business of clinical trials, has become a significant area of commercial interest among health industry stakeholders in Korea, especially given the size of Korea’s domestic health care technology market.

Premarket clinical R&D involves testing new health care interventions on patient populations. Because human subjects are involved, clinical R&D is highly regulated to ensure patient safety. The challenge of regulating clinical R&D is to balance the inherent risks and uncertainties of clinical research on human subjects—in other words, protection —against the potential promise of health care technology innovation and possibly commercial returns—or industry promotion. As it turns out, when it comes to clinical R&D, nonmarket and market imperatives can be easily aligned, in that there is a market-reinforcing imperative for ensuring patient safety. That is to say, regulation and regulatory credibility are market-supporting.4 The example of Vioxx and its voluntary recall by Merck and the several cases of tainted food exports from China demonstrate how regulatory blind spots or outright regulatory negligence can have disastrous consequences for both human health and commercial returns. In fact, the 2008 Ernst and Young report on commercial biotech industry identifies regulation and the ability of the state to enforce regulatory policies a source of national advantage, a “competitive differentiator” that can go “a long way to boost investor confidence” and “help foster homegrown companies that are competitive on the global stage.”5

Regulatory and market alignment in Korea, Taiwan, and Singapore emerged as far back as the 1970s and 1980s, when governments there began to impose stricter regulations on health technology development. There was little resistance from industry. Moreover, safety-related regulations initiated by health policymakers also prompted little opposition from more industry-focused stakeholders within the state. Into the 1990s, government efforts in Korea, Taiwan, and Singapore, again led by the health ministries, to devise and enforce national guidelines for Good Clinical Practices (GCP) similarly met little resistance and opposition from industry stakeholders. The enforcement of GCP guidelines and efforts to harmonize the guidelines with global standards aligned with industry’s commercial objectives. Regulatory efficacy was important.

Throughout the 1990s and early 2000s, the state in Korea, Taiwan, and Singapore continued to sponsor new regulatory initiatives such as the creation of publicly managed clinical trial centers, international certificate training programs for regulators, and the institutionalization of inspection and oversight procedures.6 Most notable among these later regulatory initiatives was the establishment of institutional review boards (IRBs). Learned from other advanced industrial economies, IRBs are governance mechanisms that function as gatekeepers overseeing the application of clinical research protocols. Attached to research centers, IRBs are intended to ensure that both ethical and scientific best practices are adhered to by researchers.7 They therefore operate as an extension of the regulatory state, as de facto subsidiary agents of the state. They allow the government to regulate from a distance, insulated from various interests. Since 1995, national GCP guidelines in Korea have required that all clinical trial protocols be overseen by an IRB as a condition for eventual approval and registration by the Korean FDA.8 Rather than experience the IRBs as a constraint, however, industry and R&D stakeholders in Asia view such regulation as aligned with market demands. Moreover, the impetus and administrative lobbying for deepening the IRB system in Korea, Taiwan, and Singapore came from the medical R&D community and biomedical industry and not from the state.9

Regulatory efficacy is critical for gaining market share in the business of clinical R&D. However, regulatory and administrative efficiency is equally critical for realizing commercial returns in clinical health technology development. More than half of expenditures for new drug development are accounted for by the costs of clinical R&D (i.e., clinical trials).10 Thus, increasing regulatory efficiency to reduce expenditures is desired by industry, so long as regulatory efficacy is maintained. Both efficacy and efficiency are a significant competitive advantage. Regulatory inefficiency, on the contrary, is a disadvantage. In the past, redundant administrative structures and the lack of regulatory expertise frustrated efforts to attract more clinical R&D opportunities to Korea, Taiwan, and Singapore. Furthermore, comparatively long approval times for research protocols kept global clinical trial activities and the commercial business of clinical R&D outside the region.11 Regulatory regimes were effective, but they were also inefficient.

Administrative reorganizations were launched in all three places beginning in the late 1990s to streamline cumbersome bureaucratic processes and eliminate administrative redundancies. The Korean Food and Drug Administration (KFDA) was elevated in status in 1998 to that of an administrative agency. The KFDA subsequently took over the responsibilities for monitoring clinical trials and clinical R&D from the Pharmaceutical Affairs Bureau. Taiwan’s ministerial-level Department of Health created the Center for Drug Evaluation (CDE) in 1998 to review and screen all clinical R&D protocols submitted to the Department’s Bureau of Pharmaceutical Affairs (BPA). As a result of these efforts to streamline administrative processes, approval times for clinical trial protocols were reduced dramatically. In Korea, approval times dropped from around 110 days in 2000 to an average of 30 days in 2004.12 In Taiwan, approval times similarly decreased after the establishment of the CDE, from 90 days to between 30 and 45 days.1 3

A similar process of institutional streamlining occurred in Singapore during the early 2000s. In 2001, the Ministry of Health combined five departments to form the Health Sciences Authority (HSA), the sole body tasked with regulating clinical R&D activities. Later, in 2004, the Center for Drug Evaluation and the Center for Pharmaceutical Administration were merged to become the Center for Drug Administration. In both instances, as was also the case in Korea and Taiwan, institutional reorganization was intended to streamline administrative processes, to limit regulatory redundancies, and ultimately to ameliorate interagency conflict by centralizing existing regulatory bodies. According to industry watchers, administrative reorganization resulted in more efficient regulatory practices, which have become a key advantage for Singapore. When compared with regional competitors in Southeast Asia, Singapore has the quickest approval times, just three weeks, for regulatory approval of clinical trial protocols, and it has maintained positive perceptions of its regulatory rigor.14

Regulatory efficiency, provided that efficacy is not compromised, is a competitive advantage in an increasingly crowded market in clinical R&D activities.15 And in these Asian cases, institutional streamlining (efficiency), combined with the implementation of IRBs and the enforcement of GCP guidelines (efficacy), is paying off in terms of increasing activity in their respective clinical R&D sectors. This is especially pronounced in the business of clinical trials. In all three places, multinational or international clinical trial activities increased markedly after these efforts in regulatory reform. And Korea, Taiwan, and Singapore are attracting more R&D opportunities in early-stage clinical trials and clinical R&D, where value-added gains and the complexity of the work are both higher and more lucrative.16 The number of clinical trials in Asia remains comparatively small by global market standards, to be sure, but what is nonetheless significant is that the scope and amount of clinical R&D activities have expanded quite considerably, and that governments in Korea, Taiwan, and Singapore are putting into place the necessary regulatory frameworks in anticipation of and in preparation for growing their domestic biotech and life sciences industries.

The development of clinical R&D regulations in Korea, Taiwan, and Singapore shows that when interests are aligned, particularly with respect to balancing market and nonmarket priorities, regulatory certainty, enforceability, and consistency can be achieved, and that such alignment, as I have called it, can bolster biotech industry success. Patient protection and industry promotion, at least in terms of clinical R&D, are mutually reinforcing and market-supporting priorities.

Regulatory regimes are a critical part of the industrial policy mix in the life sciences sector. The state and its ability to make regulatory policies that balance potentially contending pressures and interests are important variables in regulatory certainty. The development of clinical R&D regulations and oversight institutions, for example, illustrates how the balance between market imperatives of industry promotion and nonmarket considerations of patient safety can be reconciled in productive ways. However, achieving such a balance is far from certain; conflict or the unalignment between regulatory and market imperatives can just as likely emerge. The state, as both the regulator and promoter of biotech industry, is, in practice, a multiple stakeholder state wherein the prospects of regulatory unalignment are very probable.

Balancing protection and promotion is difficult to do because of the inherent uncertainties of life sciences innovation and the tolerance thresholds for what is unknown. For instance, both industry and regulators concede that there can be no guarantees of patient safety, regardless of how stringent regulatory policies are; there is always uncertainty. They also recognize that clinical R&D involves a delicate though uncertain balance between risk and reward in terms of what is a tolerable trade-off. Gerd Gigerenzer and colleagues explain that “much of medicine, is in fact, about evaluating risk and making effective decisions in the face of uncertainty and when it comes to settling on a decision, one must understand that there is no certainty and no zero-risk but only risks that are either more or less acceptable.”17 With respect to regulatory policy, then, decision makers strive to keep the swing of the protection-promotion “pendulum” in an acceptable balance. But stakeholders also understand that this is difficult to achieve. As one health policy official in Singapore explains, regulators are always anxious about the swing of the protection-promotion pendulum, knowing that if regulatory constraints are perceived as too stringent, then industry will press for more lax oversight, but that if patient safety is threatened, then accusations of regulatory negligence will be voiced and the credibility of the regulatory authorities will be tarnished. And of course, patient safety will be in jeopardy. The lessons of the Vioxx experience and other regulatory scandals have not fallen on deaf ears among regulators and industry in Asia.18

The tensions between protecting and promoting, and the uncertainty of achieving a balance between them, has recently begun to be played out in the regulatory state in Korea, Taiwan, and Singapore, particularly as bio-industrial growth has been much slower than hoped. Some argue that commercial biotech growth is hampered by overly stringent regulations, that the pendulum swings too far in favor of over regulation and constraint, and that regulation is stifling commercial innovation. For example, senior officials in Taiwan’s Bureau of Pharmaceutical Affairs were dismissed by the Department of Health when a simmering conflict between the BPA and the Center for Drug Evaluation came to a head. The CDE was created during the late 1990s to make approval processes for clinical R&D activities (i.e., clinical trials and product registration) more efficient while ensuring continued regulatory efficacy. The BPA, on the other hand, insisted that approval barriers remain high and that patient safety be the primary, if not the sole, concern of health regulators. The BPA worried that the pendulum was beginning to swing dangerously toward the interests of industrial efficiency at the expense of patient safety and regulatory efficacy. The CDE, meanwhile, felt that an obstructionist BPA was imposing too many regulatory gatekeepers, and that the CDE’s approach to “regulatory science” more optimally balanced the tensions between promotion and protection.19 Reportedly under pressure from the economic ministry, the BPA leadership inside the health ministry was forced out. From the perspective of industry, firms were unsure of the direction of the state’s regulatory practices. They watched events unfold with great uncertainty.

The story of the BPA and CDE in Taiwan illustrates how regulatory policymaking can be uncertain and how the implementation of such regulations is not automatic. Regulation and the regulatory state are shaped by conflicts of interests, stakes, and priorities. As one Taiwan health policy official succinctly described it, “the Ministry of Economic Affairs is supposed to do the promoting while the Department of Health is supposed to do the protecting. ”20 When conceived of in this way, it is clear how the regulatory state is in practice a multiple stakeholder state.

The tension between protecting and promoting is captured in an important 2000 OECD report by Stephane Jacobzone on the global pharmaceutical sector. Focusing on the state’s multiple stakeholder roles, Jacobzone contends that “ideally, instruments of policy should be specific to each goal, while not distorting the achievement of other goals,” though, as he points out, the reality is that governments actually play a “double role.” And these roles are not necessarily complementary, nor are they mutually reinforcing. Regulatory policies that both promote and protect, for instance, are pushed by different sets of actors, usually the economy ministry for the former and the health ministry for the latter. At times, promoting and protecting can be aligned, but as Jacobzone points out, more often than not, they work against each other.21

Regulatory policies are contested among different actors, representing various ministerial interests as well as civil society. Actors also have an array of expertise, making it even more difficult to arrive at some sort of regulatory consensus. Regulators know the science of clinical regulation whereas industrial planners are experts in designing incentives to promote cutting-edge R&D. Meanwhile, health economists have the expertise to determine the economics of health care accessibility. As expert communities, actors also hold different worldviews and priorities. Indeed, bio-ethicists in all likelihood contemplate the desirability of stem cell research differently than, say, R&D policymakers, just as health policy officials probably understand the risks of clinical R&D differently than industrial policy planners.

Actors’ varied expertise, interests, priorities, worldviews, and thus regulatory policy positions increase the complexity of coordinating regulatory policymaking. As we saw in Chapter 2, the decentralization of expertise and the absence of any overarching leadership in regulatory policymaking within the state apparatus make it difficult to achieve any sort of regulatory consensus. And as the story of the BPA and the CDE in Taiwan illustrates, striking an agreeable balance between the imperatives of protecting and promoting, among actors that understand the priorities of clinical regulation in fundamentally different ways, can be elusive. Regulating biotech innovation is a multidisciplinary endeavor, and it invariably invites intermural conflict inside and outside the state apparatus. The regulatory state, as described by Jacobzone, is a state with conflicting roles.

A flashpoint in current regulatory debates in biotech centers on the controversies surrounding stem cell research, a debate that emphasizes the broad range of actors and interests involved in regulatory policymaking as well as the intense conflicts inside and outside the state. The ethical implications of life sciences research and innovation, especially with respect to embryonic stem (ES) cell R&D, are hotly contested. Debates are not limited to questions of the societal desirability of ES cell research, but also concern the ethical appropriateness of the acquisition of stem cells and, of course, the potential abuses of cloning. There is also considerable debate about the use of patented discoveries that result from ES cell R&D. The state’s mediation of these debates and ultimately the state’s regulation of biotech are essentially nonmarket considerations of not only what can be commercialized but, even before that, what is considered ethically appropriate research. In other words, the state functions as both a market and premarket regulatory gatekeeper, a role that influences the course of commercial biotech industry development, as current debates in the United States demonstrate.

The conventional wisdom, especially among conservative Western pundits, about bioethics and Asia is that most Asian states have opted for relatively liberal and lax regulatory regimes. Rightly or wrongly, it is commonly understood that, for example, Alan Colman, the team leader who helped successfully clone Dolly the sheep, moved to Singapore in part because of its less stringent regulatory regimes for ES cell research. Lax regimes, it is suggested, entail a competitive if unethical advantage for countries looking to enter the cutting-edge areas of stem cell research. That the global leader in biotech, the United States, has imposed relatively strict constraints on ES cell research strengthens the competitive edge for those states with less strict regulatory regimes. The conventional wisdom suggests that late entrants in the life sciences sector such as Korea, Taiwan, and Singapore are deliberately shaping their ES cell policies in ways that privilege economic benefits and corporate profits over ethics, and that industry has enjoyed overwhelming influence over the state’s ability to otherwise regulate and constrain stem cell research. Regulatory policies, it is said, have been crafted to promote industrial growth with little regard for the ethical consequences of life sciences research. Arguments from this camp furthermore suggest that shallow democratic institutions, such as in Singapore, permit unilateral decisions by the state to open up opportunities in ES cell research, with less pressure to fully engage contentious ethical positions that might emerge from the bottom up. The absence of deep religiosity and the undermobilization of religious groups also contribute to the perception that places such as Korea, Taiwan, and Singapore are legislating from the top down what are relatively liberal regulatory regimes in the area of stem cell R&D.22

This conventional wisdom is, in my view, gleaned as much from comparisons with conservative U.S. stem cell policy as it is from surface impressions of Asian late developers in the life sciences field. For one, the reality is that there is considerable variation among the Korean, Taiwanese, and Singaporean cases with respect to ES cell regulation, and specifically the acquisition of embryonic stem cells, the most controversial aspect of bioethics. For example, in Korea and Taiwan, the use of embryos developed from in vitro fertilization for research purposes is prohibited.23 Singapore, on the other hand, permits such R&D activity.24 Also contrary to the conventional wisdom, regulatory regimes in Korea, Taiwan, and Singapore have been derived, in part, from ethical principles, as opposed to pure profit motivations. In fact, they are relatively constraining in terms of ES cell research, in line with most other advanced industrial countries. Human (reproductive) cloning, for instance, is explicitly prohibited, as it is elsewhere, and the use of any incentives for the procurement of ES cells is illegal in Korea, Taiwan, and Singapore.25 They are not liberal outliers. Most important, the emergence of national regulatory guidelines for stem cell research in all three places was the result of continual deliberation, contestation, and conflict, and only over time was some resolution achieved. The extent to which there is currently some regulatory clarity and certainty in the area of ES cell research is a consequence of an intensely political process of consensus building. In short, regulatory uncertainty has had to be overcome, and the outcomes of these political processes were not givens.

The conventional wisdom described above glosses over the political debates regarding the appropriateness of ES cell research in East Asia. Due to the ethical conundrums presented by biotech, various groups—grassroots religious, human rights and democracy, consumer, and patient activist—mobilized and shaped the processes of regulatory reform. In Taiwan, human rights activists forced the National Science Council to abandon its plan for a national genetic database, citing the need for stronger parallel legislation in privacy protection, informed consent protocols, and patenting.26 Similarly, in Korea, civic group coalitions were formed in 2005 to oppose the government’s Bioethics and Biosafety Act, arguing that the proposed bill failed to include sufficient protections for patients. Civic groups asserted that the act was unconstitutional and reckless with respect to the protection of human life.27 Even in nondemocratic Singapore, nongovernmental organizations (NGOs) mobilized in 2001 to pressure the state’s Bioethics Advisory Committee (BAC) to address concerns about patenting activity in ES cell research and the need for consistent enforcement of ethical regulations among private and public researchers.28 Bioethics “watchdog” organizations have also emerged in all three places to monitor biotech R&D and regulatory policies. In 2004, for instance, the Korean Bioethics Association publicly pushed the government to investigate Professor Hwang Woo-Suk and in particular the questionable means by which he acquired human eggs used in his research. We now know that Professor Hwang’s disgrace was hastened by Korean civic groups.29

Bottom-up civic activism and the increasingly prominent role of societal stakeholders in biotech development are forcing the state in Korea, Taiwan, and Singapore to create new institutional channels to facilitate the flow of information between state and society. The state has had to become more responsive, recognizing that ES cell regulatory policies cannot be legislated unilaterally from the top down, contrary to the conventional wisdom. The National Bioethics Committee, created in Korea after the passage of the Bioethics and Biosafety Act, includes members representing nonstate actors, such as academics, religious organizations, and other social movement groups. In Taiwan, the ministerial-level Department of Health similarly sanctioned the founding of the Taiwanese Society for Reproductive Medicine in order to facilitate debate about government policy in ES cell research. In both Korea and Taiwan, the state fosters rather than constrains deliberation and contestation among a broad range of state and nonstate stakeholders.30

The absence or presence of democracy does not seem to have affected the extent to which states engage in policy consultation and welcome politically charged ethical debates. In Singapore, the cabinet established the Bioethics Advisory Committee, a group of academics, NGO leaders, and foreign advisers.31 In all three cases, the development of ES cell regulatory policy has involved processes of contestation and consultation. Actors approach the regulatory debate with different interests, reflective of different values and worldviews about the ethical place of ES cell research. The state, in turn, has been forced to broker, rather than impose, regulatory clarity and certainty. This process has unfolded over a period of time. And indeed, the consensus building process has not always been smooth.

Korea’s comprehensive Bioethics and Biosafety Act was passed in 2005, though it took twelve attempts between 1997 and 2003 to align a policy consensus within the multiple stakeholder state. Internal politics within the state frustrated the processes of consensus building. Civic groups also mobilized to ensure that their voices were heard in policy deliberation. Coordinating policy responses was also complicated by the political dynamics internal to the multiple stakeholder state. The Ministry of Science and Technology and the legislative committee in charge of science and technology policy in the National Assembly pushed for more lax regulatory oversight by the state. Excessively stringent rules, they reasoned, hindered upstream life sciences R&D and ultimately commercial bio-industry development. The Ministry of Health and Welfare opposed this policy direction, arguing instead for a stronger government role in overseeing and constraining certain types of controversial research, including ES cell R&D.32 Interministerial conflict stymied bioethics legislation for several years, during which time ES cell R&D was conducted, in effect, in a regulatory vacuum. This period of regulatory uncertainty is thought to be one of the principal factors that contributed to the serious ethical breaches and research misconduct revealed recently in Korea’s stem cell R&D activities.33 In this case, conflict, and thus the absence of policy clarity and certainty, set back Korea’s efforts to emerge on the cutting edge of ES cell R&D.

Recounting the development of bioethics regulation in Korea, Taiwan, and Singapore demonstrates how the processes of regulatory policymaking are intensely contested among various stakeholders. The lines of conflict reflect broader clashes of interests, priorities, and professional expertise over regulatory policy and biotech innovation. As the example of Korea demonstrates, conflict is endemic in regulatory policymaking, in which consensus and regulatory certainty are achieved only through a process of considerable contestation among stakeholders over time. Contrary to the received wisdom, then, interest alignment in bioethical debates has had to be politically constructed in Asia, mediated by and within the multiple stakeholder state .

The challenges of resolving regulatory uncertainty are further revealed when we consider how the multiple stakeholder state shapes markets. Regulation policy is inextricably tied to the market, as either a facilitator or a constraint on commercial biotech innovation. In some instances, such as with clinical R&D, market incentives and nonmarket imperatives for patient safety can be aligned. The same can be said of ES cell regulation, although the alignment process in this case, as I have described it, was considerably more contested inside the state. In other instances, however, the state’s multiple roles and interests can become unaligned and remain so. The impact of the unaligned regulatory state is most pronounced in those regulatory policies that are intended to explicitly make markets.

The long-term prospects of the commercial biotech industry in Asia will depend on not only the supply of technologies but also the market or demand for such technologies. Markets in highly regulated sectors such as biotech are not constituted solely by consumer demand and industry supply, however. Rather, markets are shaped by the regulatory functions of the state that shape market access for biotechnological innovations. Put simply, markets hinge on the regulatory state’s gatekeeper role of determining what technologies can in fact be allowed into the market.

Biomedical firms in Korea, Taiwan, and Singapore aspire to supply to global markets in the West and Japan and to the potentially large consumer markets in China and India. Yet domestic markets matter too, for several reasons. For one, supplying local demand enhances firms’ credibility, making it easier to jump regulatory hurdles elsewhere and thus gain access to global markets. Furthermore, domestic markets in these rich though otherwise small Asian economies are in fact quite sizable, due to their wealth and unusually large demand for high-quality, cutting-edge health care technologies. Singapore’s efforts to become the regional hub for high-technology health care services (i.e., health care tourism), for instance, have increased demand for innovative health technologies. The Korean and Taiwanese pharmaceutical markets were ranked the nineteenth and twentieth largest in the world, respectively, during the 1990s, each accounting for US$2–3 billion in sales. Upward of one-quarter of total health care spending in Korea and Taiwan is for the purchase of drugs.3 4

Pharmaceutical and health technology markets more generally are determined by regulatory policies. Due to persistent market failure and the high risks involved in clinical applications of new life sciences technologies, state intervention, or more accurately the construction of markets, is the norm. Take, for example, Singapore, understood to be among the freest economies in the world, which is also technically the case in the medical care market. In Singapore, there are no set prices for innovative drugs. There are also few regulatory obstacles, and as I described earlier, approval processes for new innovative drugs have been streamlined and made more efficient than in the past. However, the government subsidizes the cost of medicines prescribed in Singapore’s public health care clinics and hospital wards. The state thus indirectly encourages the use of lower-priced generic medicines in public facilities in order to contain overall health care spending. The market effect of this policy has been to push down prices on innovative, R&D-based drugs. Multinational drug companies have complained to Singaporean health policy officials about the government’s indirect cost-containment policy, asserting that public subsidies that favor the use of generics have a negative effect on the drug industry’s ability to produce and market innovative therapies.35 My point is that even in tiny free-market Singapore, the health care market is constructed to some extent by government regulatory interventions.

The Singaporean market is small; potential markets in Korea and Taiwan are not, however, and thus the impact of regulatory policies on market formation is magnified. Both Korea and Taiwan introduced publicly managed national health insurance systems during the late 1980s and 1990s, and the take-up rates for medical care and the purchase of health care products and services increased across the board.36 Total health care spending has also grown in both places. What is most significant, however, is that in these state-run insurance systems it is the state that is the monopsonistic buyer (on behalf of insured patients) of health care and health technologies such as pharmaceuticals, diagnostics, health data, and other medical care interventions. As the sole purchaser of health care, the state enjoys tremendous leverage in constructing health care technology markets.

The state has two key regulatory policy instruments with which to shape the health care market. First, the state has an impact on market access, especially in determining which products and services are to be included on the list of interventions reimbursable by the health insurance system. Making it onto the reimbursable list is critical for suppliers, as over 75% of all market-approved drugs (and other health care products and services) qualify for reimbursement by the government-managed insurance carrier. In other words, those products or services not on the list are effectively out of the market. The upshot is that government regulatory policy, and not pure market forces per se, determines which products and services can enter the market in Korea and Taiwan. Second, the state, as the monopsonistic purchaser of care, also affects the price of all health care products and services on the reimbursable list. It is not simply the supply of innovative technologies that drives costs in the health care system, which is often assumed to be the case for patent-protected innovative technologies; rather, it is the interaction of supply and demand, and the latter is shaped by government regulations, as opposed to the market. One could therefore argue the case that health care policy is in effect industrial policy.

But we also know that government policies in health care are motivated by different and potentially conflicting concerns and priorities. On the one hand, state officials might be motivated by the imperatives of providing affordable health care, in which case cost containment would be the main regulatory policy priority. Yet the multiple stakeholder state might, on the other hand, use health care policy to facilitate, through demand-side manipulation, the growth of the health care technology industry by pushing prices upward and thus fueling investment and returning profit back to industry. In the multiple stakeholder state, these motivations are not necessarily complementary. In fact, they can be intensely zero-sum. And when they are in conflict with each other, they are a tremendous source of regulatory uncertainty for biotech stakeholders.

Before the late 1990s, health care regulatory regimes in Korea and Taiwan actively proscribed the introduction of imported innovative and R&D-intensive drugs. In Korea, such high-cost products were effectively left off the insurance system’s reimbursable list. The regulatory regime in Taiwan similarly imposed high barriers of entry for new imported products, requiring, for instance, that drug makers produce clinical validation data from other global markets, the effect of which was essentially a regulatory market barrier. In other words, regulatory policies were used to restrict market access. This inevitably drew tremendous opposition from foreign governments and pressure from industry, and such pressure eventually came to bear on the government in Korea and Taiwan.

In the first decade of the 2000s, faced with pressure from foreign and by then a nascent but growing domestic biomedical industry, regulators in Korea and Taiwan began to amend their gatekeeping standards, accepting, most notably, foreign clinical trial data for domestic market approval and product registration. Approvals for new and innovative products were quicker and easier. Consequently, the number of health care products registered and marketed (and thus reimbursable through insurance) in Korea and Taiwan increased dramatically. By the early 2000s, Korea’s reimbursable list included over 21,000 items, far outnumbering other countries with national health care systems, including the United Kingdom (12,000) and Sweden (3,000).37

Concerns about the size of the reimbursable list and thus the cost-effectiveness of having introduced so many products and services into the domestic market quickly emerged in Korea and Taiwan. Health policy officials worried that there were too many products in the market, resulting in product redundancy. They were also concerned about the increasing cost burden on their national health insurance systems, particularly as health care providers (physicians and pharmacists) tended to overprescribe. Thus, health policy decision makers in Korea and Taiwan began to adopt health technology assessment schemes, learned from other industrialized nations, for the purposes of cost rationalization.38 Policymakers began to employ, for instance, pharmaco-economic analysis in order to evaluate the cost-effectiveness of individual treatments, to determine which items ought to be included on the health insurance reimbursable list and which could potentially be delisted.

The creation in 1998 of the Center for Drug Evaluation in Taiwan was intended to involve more pharmaco-economic evaluation of reimbursable health benefits, but it was the Korean health care system that more rapidly adopted the technology assessment approach. In 2002, the Ministry of Health and Welfare established the Health Insurance Review Agency (HIRA), an independent office attached to the administration of Korea’s national health insurance system. While the Korean FDA is tasked with evaluating and reporting on the clinical efficacy of new drugs and other medical care products, the HIRA was intended to evaluate the cost-effectiveness of such interventions, balancing economic value (i.e., costs) with clinical effectiveness. The HIRA makes recommendations to the MOHW’s benefits advisory committee.

Participation in the HIRA review process was voluntary, though firms were encouraged to participate. To induce participation, regulatory policy decision makers in Korea concerned with rationalizing the costs of health care signaled that they would be more inclined to facilitate market entry for those products that measured cost-effective, an evaluation made possible only for those firms that voluntarily complied with HIRA regulations.39 Health technology assessment has therefore allowed the state to more directly mediate market access. Not surprisingly, industry, both foreign and local, and especially those firms looking to introduce new, innovative, and R&D-intensive technologies, have opposed the state’s role in these matters.40 Conflicts along these lines have emerged in Korea and Taiwan. From the perspective of industry, this enduring and yet unresolved conflict poses great uncertainty with respect to future markets.

The regulatory reach of the state is not limited to mediating access to the market. As the administrator of national health insurance systems and as the monopsonistic buyer of health care products and services, the regulatory state also effectively determines market prices for health care products and services. Tensions between industry and the state, and ultimately among different interests within the multiple stakeholder state, are even more significant in this respect. While sales volume and market share are a function of market access for the innovative firm and obviously are important to the firm’s overall returns, a technologically cutting-edge firm’s profitability is ultimately determined by price. Innovative biomedical firms need high (or market) prices; they cannot rely solely on volume sales. Thus, strategic health care pricing policy in relatively large markets such as in Korea and Taiwan can have an indirect but very significant effect on biomedical industry outcomes.

In both Korea and Taiwan, health care pricing policy has created an unusually narrow gap between the reimbursable prices for generic medicines and novel drugs. Price regulators there have imposed a strict price ceiling on R&D-intensive and innovative technologies, estimated to be 15% to 30% below international market prices.41 Meanwhile, health care policy decision makers have maintained very high price floors on generics, such that generic pharmaceuticals are priced at 80% to 90% of equivalent novel drugs.42 According to industry stakeholders there, these pricing policies effectively squeeze both sales and profitability of innovative and R&D-focused drug companies. On the flip side, however, high price floors for generics serve as a protectionist mechanism for generic drug manufacturers and specifically for local firms. Despite efforts to grow their novel drug development capacities, the vast majority of commercial activity in Korea and Taiwan remains in low-end manufacturing and distribution of generics.

Inflated prices on generics furthermore allow firms to provide discounts to medical care providers, resulting in a significant gap between the actual (i.e., discounted) transaction price and the reimbursement price that health care providers claim against the health insurance system. Both parties—the generic drug firm and the physician-provider—thus benefit under such an arrangement. The firm sells more products, which is critical for generics manufacturing, as volume and not price is what determines firms’ profitability (unlike for innovative firms). In the meantime, health care providers pocket the difference (between the actual price they pay and the price for which they are reimbursed) as a kickback. This shady discounting practice is so prevalent that the American Chamber of Commerce in Taipei estimates that during the first years of the 2000s over US$600 million was lost in this pricing “black hole.”43 Health economists point out that the price gap has contributed to the overprescription and thus redundant dispensing of pharmaceuticals and other medical care services, leading to tremendous waste in Taiwan’s national health insurance system.44 Korea’s medical care profession has also tended to overprescribe pharmaceutical therapies, for similar reasons and with similar consequences. In response, the government in Korea and Taiwan has attempted to legislate policies to ensure that suppliers and medical care providers align the actual transaction price of drugs and other medical care products with that of the reimbursable price. However, monitoring such transactions has proven very difficult, and outside observers remain skeptical about the government’s ability to mitigate this problem.

Pricing policy in Korea and Taiwan (and also in Singapore) for drugs and other health care products has been motivated not only by protectionism for the local generics industry but also by the imperatives of cost control in total health spending. This is most evident in how the government has handled the registration and distribution of expensive novel drugs. To rein in health care spending, the government in both places implemented demand-side and supply-side cost-containment schemes after the introduction of national health insurance. With respect to demand-side measures, the Bureau of National Health Insurance in Taiwan increased out-of-pocket co-pay rates at the point of delivery to curb excessive abuse of the health care system. For the same reasons, the Korean medical insurance authorities maintained high co-pay levies when the insurance system there was first devised. In terms of supply-side cost containment, Taiwan’s health insurance system phased in global budgeting schemes to cap provider spending. Meanwhile, in Korea, the government imitated Taiwan’s lead by separating the responsibilities of drug prescribing and dispensing among physicians and pharmacists to reduce excessive drug use. In other words, supply-side cost-containment schemes have been implemented to reduce the overall purchasing capacity of the health care system in Korea and Taiwan.

Success in actually lowering total medical care spending, however, has been lukewarm at best.45 Health care costs continued to spiral upward in the first decade of the 2000s, threatening the fiscal sustainability of Korea’s and Taiwan’s medical insurance systems. In response, health policymakers turned to price controls on drugs and other health care products. In 2001, the Korean Ministry of Health and Welfare slashed reimbursable prices by 7.63% for one-quarter of all drugs listed on the insurance formulary.46 Between 2000 and 2002, Taiwan’s Bureau of National Health Insurance cut prices on nearly 20,000 items on its reimbursable list.47 These initiatives resulted, not surprisingly, in tremendous criticism from foreign and local medical technology firms, especially innovation-driven firms that need high levels of profitability to reinvest in R&D. Cost-containment policies, they contend, stifle firms’ innovative capacity. This tension between the imperatives of cost containment and industry promotion is not unique to Asia. Indeed, the most recent Ernst and Young global biotechnology report put it succinctly: “Governments around the world are looking for means of reducing the cost of health care, and drug companies are frequently becoming convenient scapegoats.”48

Regulation poses obstacles along the way of commercializing biotech innovation. In this respect, regulatory hurdles lengthen the distance to market in the innovation process, exacerbating the problems of temporal uncertainty. But as I have suggested in this chapter, regulation is in and of itself not a problem. It is an expected—and indeed, critical—aspect of life sciences innovation and R&D, and actors adapt to regulatory regimes. Indeed, regulatory policies, as I have shown here, can facilitate commercial biotech innovation. However, regulation becomes a source of greater temporal uncertainty (in what is already a terribly uncertain process) when regulatory regimes are inconsistent, incoherent, contested, and uncertain. As I indicated at the beginning of this chapter, what matters most to biotech stakeholders is not so much the content of regulatory policy, since actors can learn and adapt, as its clarity and predictability.

When interests align, such as in the imperatives of promoting industry and protecting patients, we can expect a greater degree of regulatory certainty. The early development and enforcement of clinical R&D regulations, for instance, proceeded relatively smoothly in Korea, Taiwan, and Singapore, in part because of the pull of global harmonization but also because the imperatives of promoting and protecting, at least in this particular regulatory policy area, were regarded as complementary and mutually reinforcing. In clinical R&D, the first example in this chapter, market and nonmarket pressures have been more or less aligned in that patient safety and regulations to ensure such protections are seen as market-supporting competitive advantages. This chapter also explored a second example of regulation policy, the development of bioethics regulations in Korea, Taiwan, and Singapore—specifically, how contested agendas and interests can be reconciled and balanced over time and how the state is central to this mediation process. Potentially contentious interests and priorities in the multiple stakeholder state were aligned, and this has promoted greater regulatory certainty for biotech stakeholders. But it needs to be emphasized that the arrival of such a consensus involved a political process of aligning various interests, priorities, and expertise within the multiple stakeholder state.

When interests and priorities in regulatory debates become or stay unaligned, such as in the making of health care markets, regulatory uncertainty ensues. In the example of health care market access and pricing, the multiple stakeholder state in Korea, Taiwan, and Singapore is the site of contestation and conflict among different state interests and priorities, such as the varied proponents of health care cost containment, health technology access, and health industry promotion. The state, due to its many cross-cutting priorities in the development of new health technologies, has been unable to coordinate and align these various interests. And this is significant for two reasons in the larger context of this book. First, regulatory uncertainty exacerbates biotech industry’s temporal uncertainty, thus putting even greater pressure on already waning appetites for the even longer-term realities of biotech innovation and commercialization. Second, the persistence of such regulatory uncertainty reveals the cross-cutting interests entrenched within the multiple stakeholder state, a new political economic reality that contrasts with the administrative coherence associated with the developmental state.

6 . For a more detailed overview, see the Drug Information Journal 32 (1998) as well as the Drug Information Journal Supplement 37 (2003). See also Mary Ellen Rosenberg, “Implementing GCPs in Asia,” Quality Assurance Journal 4 (2000); In-Jin Jang, “Regulatory Perspectives and Clinical Trial Status in South Korea” (paper presented at the 6th Kitasato University–Harvard School of Public Health Symposium on Advanced and Global Drug Development Techniques, Tokyo, Japan, October 2005).

7 . See Bioethics Advisory Committee, “Advancing the Framework of Ethics Governance for Human Research, Annex B,” Consultation Paper, Singapore, September 16, 2003; Herng-Der Chern, Ing-Tiau Kuo, Low-tong Ho, Hsin-Nan Lin, and Sheng-Muo Hou, “The Joint Institutional Review Board in Taiwan,” Drug Information Journal 32 (1998); Ock-Joo Kim, “Current Status of Institutional Review Boards in Korea: Constitution, Operation and Policy for Protection of Human Research Participants,” Journal of Korean Medical Science 18 (2003).

16 . Between 1978 and 1997, only 465 clinical trial certificates were issued in Singapore. From 1998, the year that GCP standards were imposed, to 2004, the number of clinical trials increased to 1,090. Likewise, in Taiwan, after the introduction of national GCP standards in 1996, clinical trial protocol reviews grew from just 33 in 1993 to 102 in 1997, with half the reviews conducted in 1996–1997. In 2002, when Taiwan upgraded its GCP to International Conference on Harmonisation (ICH) standards, multinational clinical trials accounted for nearly half of all protocols reviewed that year. After the Korean government harmonized its GCP regulations to ICH standards in 2000, the number of clinical trial cases increased dramatically, totaling 464 projects between 2003 and 2005, which equaled more than four times the activity recorded between 2000 and 2002. Furthermore, the number of multinational trials hosted in Korea in 2001 tripled from the year before, and by 2004 multinational trials outnumbered local ones. Tan Shook Fong, “Development of Clinical Trials in Singapore,” Drug Information Journal 32 (1998); Health Sciences Authority, “Creating Value,” Annual Report of the Health Sciences Authority (Government of Singapore, 2005); Jen-Pei Liu, “The Integrated Clinical and Statistical Report for Registration in Taiwan,” Drug Information Journal 32 (1998); Wang and Chen, “Clinical Trials in Taiwan”; Korean Food and Drug Administration, KFDA Database, 2006, available at http://www.kfda.go.kr (accessed March 2008).

22 . Bruce Einhorn, Jennifer Veale, and Manjeet Kripalani, “Asia Is Stem Cell Central,” Businessweek, January 10, 2005; Francis Fukuyama, Our Posthuman Future: Consequences of the Biotechnology Revolution (New York: Farrar, Straus and Giroux, 2002); Lisa Krieger, “As the US Hesitates, Other Countries Move Ahead with Embryo Research,” available at http://www.siliconvalley.com/mld/siliconvalley/news/3210920.htm (accessed July 2006).

23 . Taiwan’s Department of Health stipulates that stem cells for research be acquired solely from “fetal tissue from miscarriage . . . from abortion . . . and 14 days-fertilized-egg leftover from human assisted reproduction.” See UK Stem Cell Initiative, “Global Positions in Stem Cell Research: Taiwan,” available at http://www.advisorybodies.doh.gov.uk/uksci/global/taiwan.htm (accessed November 2006).

30 . In light of the Woo-Suk Hwang debacle, the Korean government has planned to base further funding for stem cell research on stricter review and protocol review processes. This is intended to encourage competition among researchers, to develop expertise for scientists to monitor and assess one another’s work, to reduce undue pressures to produce outcomes in the near term, and to institutionalize ethical practices in scientific activities. See Dennis Normile, “South Korea Picks Up the Pieces,” Science, June 2, 2006; Herbert Gottweis and Robert Triendl, “South Korean Policy Failure and the Hwang Debacle,” Nature Biotechnology 24 (2006); Mildred Cho, Glenn McGee, and David Magnus, “Lessons of the Stem Cell Scandal,” Science, February 3, 2006.

44 . A 2002 Taiwan Department of Health report stated that almost 50% of physicians prescribe four to five drugs per patient visit for upper respiratory infections, and 10% of physicians prescribe more than eight medications per visit; only 14 cases out of more than 100,000 visits showed that no drugs were prescribed. Cited in Tsung-Mei Cheng, “Taiwan’s New National Health Insurance Program: Genesis and Experience So Far,” Health Affairs 22 (2003), 68.