Country Report: Turkey

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In the global theater of business and politics, Turkey increasingly leverages its location as an ideal vantage point where actors can seamlessly move between all things West and East.

COVER ART BY TURKISH LOCAL ARTIST DENIZ KARAKAYA

An emerging Asian market with a special relationship to the European Union and close ties with the Middle East, Turkey's strategic geopolitical position is a place where multinational players want to be. The pharmaceutical industry is no exception.

With a growing, aging population and a young, highly skilled workforce, Turkey's demographics are also a draw. Economically, the country boasts a GDP topping more than 8 percent in 2010 and 2011 and is weathering the global economic crisis better than many of its European neighbors.

The pharmaceutical industry has also enjoyed a wave of expansion. According to IMS, the Turkish pharma market reached USD 9.8 billion in 2011 and experienced 10 percent growth in volume. This has attracted some of the industry's biggest players. In recent years, Novartis, Merck Serono, GSK, Sanofi, and Novo Nordisk have made the country a regional center of operations.

Nihat Ergün, Turkey’s minister of Science, Industry and Technology

Nonetheless, major national healthcare reforms, drastic price reductions, and market access delays have made Turkey's pharmaceutical market a particularly challenging place the past few years.

But with a new budget period beginning in 2013 and signs that the government may be looking to turn a corner, the industry is preparing for the day when Turkey becomes one of the next big pharma countries.

MAKING UNIVERSAL HEALTHCARE A REALITY

Over the past decade, Turkey's healthcare system has been radically reformed. With the election of the Justice and Development Party in 2002, universal healthcare became a top national priority. Sweeping reforms began the following year with the enactment of the Health Transformation Program.

2005 – 2011: TURKISH MARKET GROWTH IN VALUE (IEIS)

First, the country's three social security schemes were united under the Social Security Institute (SGK). Then, in 2008, the Universal Health Insurance law was passed, aiming to make healthcare widely available. Finally, in 2010, the family practitioner system was implemented, providing low-cost care by local doctors to citizens across the country.

According to Fatih Acar, president of the SGK, the reforms have made "access to healthcare services easier and waiting periods have been shortened." He said that most of the population is now covered and that Turkey is considered the "most expanded healthcare provider country in Europe."

Fatih Acar, president of the Social Security Institution (SGK)

Ayşe Çetinel Sapmaz has been the managing director of Janssen, the pharmaceutical company of J&J, in Turkey for the past 11 years and witnessed the dramatic change in the country's healthcare system. "Access to healthcare has increased dramatically—and this is of course something that we view positively. People are no longer left waiting in queues; they have access to doctors, they have access to treatment. From a societal point of view, things are moving in the right direction," she said.

On the other hand, critics raise concerns that new healthcare policy has led to over-use of the system. Alp Sevindik, secretary general and COO of the Association of Research Based Pharmaceutical Companies (AIFD), explained, "In 2002, Turkish citizens would visit a doctor three times a year, on average. However, the numbers of visits have now risen to eight. Of course, most of these visits result in a prescription. Hence, one of the problems we are currently facing is government induced volume or demand. If the government wants to provide this level of quality of health service, the volume of medicine usage will expectedly increase and accordingly, so should the budget to account for that. Unfortunately, that has not been the case."

Alp Sevindik, secretary general and COO of the Research Based Pharmaceutical Companies Association (AIFD)

According to the SGK, expenditures on pharmaceuticals increased from TRY 7.8 billion (USD 2.3 billion) in 2004 to TRY 15.8 billion (USD 8.7 billion) in 2011.

VISION 2023

In 2010, Turkey was ranked the 6th largest pharmaceutical market in Europe and the 14th largest in the world. According to a recent report by the Pharmaceutical Manufacturers Association of Turkey (IEIS) in collaboration with the Boston Consulting Group (BCG), the country could be doing a lot better.

Turgut Tokgöz, secretary general of IEIS, said that in recent years, Turkey has been far too "inward-looking" to take real advantage of the international market. "The local market was vibrant and as the pharma industry is heavily regulated, it requires a large amount of effort and capital to export products," he said.

Turgut Toköz, secretary general of the Pharmaceutical Manufacturerers Association of Turkey (IEIS)

"Unfortunately, the industry has taken the easy route and has been focusing on the local market, which has been growing quite handsomely. Now that they are somewhat squeezed domestically, they are very much interested in export markets. This puts Turkey in a late-comer phase and it is not easy to gain a good market share in export markets. The train has already been moving, but it is still possible to catch it," Tokgöz said.

That is just what the Turkish government and industry leaders intend to do. As the 100-year anniversary of the Turkish Republic approaches (Atatürk founded modern Turkey in 1923), the government has set some ambitious goals for the country, including becoming a top-ten economy, fixing the country's trade deficit, and increasing the country's annual exports to USD 500 billion.

Specific goals have been set for the pharmaceutical industry, which accounted for 10 percent of the total trade deficit in 2010 (excluding energy imports) due to a high level of imports versus a low level of exports. That year, the sector's imports were valued at USD 4.4 billion, while exports flat lined at USD 600 million.

Cengiz Celayir, chairman of the Board of TISD

The IEIS/BCG report suggests that proper measures could boost the country's pharmaceutical exports to USD 16.5 billion by the 2023 deadline.

AIFD has been working in partnership with government to encourage long-term policies that support innovation. It has developed a strategic document called the "Vision 2023" study, which recommends increasing the level of R&D and clinical research.

Women’s Strong Pharma Presence

TOWARD A NEW ERA IN PRICING

With the sweeping healthcare reforms also came a number of policies that have severely impacted pharmaceutical prices and have been widely criticized by industry leaders.

Ayşe çetinel Sapmaz, managing director of Janssen Turkey

Starting in 2004, the government established a revised reference pricing system for pharmaceutical reimbursements. The reference price of an original product is based on the lowest ex-factory price among five EU reference countries, including France, Spain, Italy, Portugal and Greece. In 2009, the Euro/Turkish Lira exchange rate was set at 1.9595. Critics argue that this rate is not representative of current price levels.

Cüneyt Balikçioğlu, general manager of Ferring Turkey

During September 2009, the government also announced a price decree that led to higher discounts on innovative drugs. As a consequence of these pricing policies, pharmaceutical companies operating in Turkey experienced great difficulty maintaining profitability.

The International Investors Association (YASED), a non-governmental organization that represents international companies operating in Turkey, has taken issue with pharmaceutical cost containment policies.

Učur Özkutlu, chairman of the association's Access to Health Working Group, said, "The past three years have been lost from our side. The discounts have gradually increased from 23 percent to 32.5 percent to 41 percent today. In that context, the pharma companies in Turkey have faced the worst setback ever. While the total market growth was 2.7 percent, multinational companies' growth here was negative 2.5 percent last year."

çetinel Sapmaz of Janssen said, "The new pricing mechanism has enforced not only the lowest prices in Turkey, but also a high number of mandatory discounts. This has put the country at a level that is 50-60 percent lower than mean European prices. We do not find this sustainable."

Cüneyt Balikçioğlu, general manager of Ferring Pharmaceuticals' operations in Turkey, entered the market in 2005 with high hopes. But the hurdles he faced the past few years stunted the growth that he was hoping to achieve.

"We were not only negatively affected by the price discounts, but also by the fixed exchange rate that hasn't been adjusted for the last couple of years and reference pricing issues. Prior to these developments, our parent company was putting a lot of emphasis and positive outlooks on our Turkish branch," he said.

"With the impact of these developments, we were not able to live up to those expectations. In my opinion, I think that we could have achieved at least three times the success and contribution that we have now realized, had these changes not taken place. I find this both disappointing and frustrating," Balikçioğlu said.

For Servier, a French pharmaceutical company, the pricing constraints have led the company to focus on its core drugs in Turkey, rather than diversifying. Matthieu Accolas, general manager for the company in Turkey, explained, "In a situation like this, it is critical to focus on the drugs which are sustainable. At the same time, we recently put together a team in order to identify the best and most effective ways to adapt to the needs of the patients and the doctors, to ultimately bring new answers and solutions to the market."

Matthieu Accolas, general manager of Servier Turkey

As Turkey's two-year Global Budget plan comes to a close, industry leaders are hopeful that negotiations of the next budget period from 2013-2015 will be more favorable.

Sevindik of AIFD said, "Our first meeting to discuss the next budget with the Social Security Institution and the Ministry of Health was a positive one where, unlike before, all of the relevant stakeholders were present. Obviously, this creates a much better environment that will allow us to build a more rational and realistic budget and discuss the system for a sustainable financing of pharmaceutical spending."

Servier Turkey Team

The SGK has also indicated that the next budgetary period could alleviate some of the pricing pressures. Fatih Acar, president of the SGK, said, "As public management, we don't desire to continue controlling the drug expenditures with public discount increase and reduces in price. We intend to create a stronger and more sustainable industry. I think this is very significant for the future of the sector."

FACING MARKET DELAYS

Beyond pricing policy challenges, the pharmaceutical industry is also dealing with slow drug approvals and limited market access. A 2011 AIFD survey found that the regulatory approval procedure in Turkey is far from reaching European Union standards.

According to the survey, the average waiting time for drug approval is 772 days and can be as long as 1,500 days for some drugs. In the EU, the standard timeframe for regulatory approval is set at 210 days. Turkey had committed to make an effort to meet this standard.

For Olcay Gündüz, CEO of Münir Şahin, one of the oldest pharmaceutical companies in Turkey, many companies are trying to catch up to international standards. "Outside Turkey, most countries have changed their registration process; they are now all following the European Medicines Agency (EMA) or the Food & Drug Administration (FDA). As a result, they are all looking for Common Technical Document (CTD) format files."

"Turkish companies only adopted the CTD format in 2005 and 2006. I myself started to prepare CTD dossiers in 2008, and I am still translating some files for foreign managers. In general, Turkey has been very much unprepared to international regulatory processes," said Gündüz.

Additionally, with the application of Good Manufacturing Practices (GMP) certification rules, it is increasingly difficult for companies to import products. Özbay of Daiichi Sankyo said, "If you produce a product outside Turkey, the Turkish Minster of Health send inspectors to your production site, who approve it."

"As the Minister of Health has a limited number of inspectors, this whole process takes time. There are today 350 products in the waiting list, and with the current frequency of inspectors visiting the different sites, it is said that it will take five years to have all these products approved," he said.

Dr. Şebnem Avşar Tuna, Novo Nordisk's general manager in Turkey, said that due to such entry barriers, the company has not been able to introduce a new product in the country for the last six years. "This has put us in a very difficult and uncomfortable position not only as a business, but also as a provider of drugs. I believe this is a lost opportunity for the Turkish public since these are promising products for the treatment of diabetes patients as well as patients with growth hormone deficiencies," she said.

Dr Şebnem Avşar Tuna, general manager of Novo Nordisk Turkey

A STRATEGIC R&D CENTER

As part of the country's 2023 vision, positioning the country as a hub for R&D, production, and operations in the pharmaceutical industry is a central part of the government's strategy. In this context, the Ministry of Science, Industry and Technology has prepared a "Draft Strategy Document for the Pharmaceuticals Industry," which covers 2011-2015 and includes objectives and action items to encourage R&D investment in the country.

Dr lIker Özbay, general manager of Daiichi Sankyo Turkey

The government seems to be making a concerted effort to reach out to the pharmaceutical industry. Last June, Turkey participated in the 2012 BIO Convention, one of the world's largest biotechnology platforms, for the first time with a ministry-led delegation, including His Excellency Nihat Ergün, minister of Science, Industry and Technology. His message to the pharmaceutical industry was clear.

"Turkey can provide substantial competitive advantage for R&D and production investments of innovative pharmaceutical industry," Ergün said during a speech at the convention held in Boston. So far, some concrete advantages offered by the government include income tax exemptions, grants, deductions for R&D enterprises employing at least 50 people, and other incentives.

Industry leaders are convinced of Turkey's potential. Hervé Dussart, president of AstraZeneca, agrees, "What happens today in Turkey? A few companies have moved their regional headquarters in Istanbul. But what will bring revenue is R&D, and manufacturing, and probably the right combination of both."

The Investment Support and Promotion Agency of Turkey (ISPAT) also sees great potential in the pharmaceutical R&D sector. Ilker Ayci, association president, said, "ISPAT is in accord with the pharma industry's view that Turkey has all the qualification to be an R&D and manufacturing center for biotechnology and biosimilar products as well as a hub for pharmaceutical innovation and development with its highly qualified workforce, attractive regulatory environment and incentive structures."

"In this regard, ISPAT's promotion and support activities focus to improve pharmaceutical industry's international competitiveness, and position the Turkish pharma industry, as one of the global R&D and production hubs, a net exporter and a regional management center," Ayci explained.

Mehmet Yusuf, founder of Altis CRO, one of the pioneering clinical research organizations in Turkey, is confident in the evolution of Turkey's R&D environment and is optimistic for his company's development.

Mehmet Yusuf, managing director of Altis Medical Research Turkey

"Turkey boasts an immense number of (hospital) beds, as well as an equally large number of people treated for various kinds of diseases. The annual turnover of patients visiting hospitals is also great, at about 80 million; exceeding the size of the population. Moreover, the number of potential researchers for clinical trials is also significant. This includes doctors in universities, teaching hospitals and people in specialty training. This leaves you with a massive pool of talent and patients for this sector which is already a very powerful argument," said Yusuf.

Beyond the favorable infrastructure, the clinical trials legislation in Turkey is in full compliance with international standards. Not only did the country have its own high standards of clinical trial regulation since the early 1990s, but it has also adopted the EU directive on implementing the Good Clinical Practice (GCP) guidelines in 2009.

An important consideration for multinational companies, which are also recognizing the country's potential to become an R&D center. Avşar Tuna of Novo Nordisk said, "We are proud to support R&D and innovation in Turkey. Together with leading Turkish doctors, we currently run numerous clinical trials in Turkey and in 2011 entered into a long-term partnership with Kocaeli University to support break-through basic research projects and foster international knowledge-sharing."

Celgene, a global biopharmaceutical company, has also invested in Turkey as an R&D hub. Marco Caligiuri, country manager, said, "We have initiated since 2008 an important clinical program, with both company-driven and investigator-initiated clinical trials, investing in it more than 30 percent of our revenue 2008 and 2011."

Marco Caligiuri, general manager of Celgene Turkey

"In fact, we have involved in our clinical program hundreds of Turkish patients, not only in haematological malignancies with lenalidomide and azacitidine, but also in immuno-inflammatory diseases, such as Behcet's syndrome with apremilast, a TNF-alpha inhibitor. This trial can represent an important example of our R&D commitment in Turkey, considering that here we can find the highest prevalence in the world, and more than 80 percent of patients enrolled in this international trial are Turkish," said Caligiuri.

Merck Serono: All About Location

Servier is also committed to investing in R&D in the country. Accolas said, "Overall Servier is investing TRY 7 million (USD 3.8 million) each year in Turkey, including research. We work with numerous Turkish scientific societies and universities. Depending on which research program we want to run and in which specific field, we look for the most adapted partnership."

A GROWING MANAGEMENT HUB

Although pharmaceutical companies in Turkey have been struggling in the face of market challenges, multinational companies are increasingly choosing the country as their base for Middle East, Africa and Asia operations.

GlaxoSmithKline (GSK) recently moved its regional center from Dubai to Istanbul. Additionally, the company appointed its General Manager and Vice President of Turkey as Senior Vice President, responsible for Middle East and Africa in the Emerging Markets and Asia Pacific, a region of 30 countries.

Ayci, president of the Investment Support and Promotion Agency of Turkey (ISPAT)

Dr. Emin Fadillioğlu, country president of GSK Turkey, said, "Turkey has an excellent talent profile. The country has technology, people, a large demand, and a significant geographic advantage, located in the middle of Europe and the Middle East. What else do you need?"

Novo Nordisk was one of the first to make the country its regional hub. "Strategically, we have chosen Turkey to serve as the regional centre for several reasons. One attractive aspect of the country to us is its political and economic strength and stability," explained Avşar Tuna.

Similarly, last April, Novartis selected Turkey as its headquarters for central Asia, the Middle East and Africa and intends to set up a new manufacturing facility in the country. Novartis board member Alexandre Jetzer-Chung noted that in recent years, Turkey has emerged as a regional center.

Top 20 firms: value vs. Volume, IMS 2011.

At Merck Serono, restructuring will put Elçin Ergün at the head of 69 countries from her office in Istanbul.

For Murat Yesildere, managing partner at Egon Zehnder International, a global executive search firm, investing in local talent is the right strategy. "The multinational organizations in Turkey which are successful are the one which have invested a lot in evaluating and hiring the right talent at the top of the company, and then delegating extensively to this person, rather than sending an expatriated and having the most important decisions taken some place else," Yesildere explained.

M&A ACTIVITY ON THE RISE

Another key development in recent years has been a noticeable increase in takeovers and partnerships. Somewhat of a departure for a market traditionally dominated by family-owned businesses, over the past five to seven years, there has been a flurry of international interest in local industry.

Ali Akyildiz, general manager of IMS Health Turkey, said, "There has been increased activity in terms of mergers and acquisitions in Turkey over the past five years. Amgen took over 96 percent of Mustafa Nevzat, which further reduced the number of important local players."

Dr Ali Akyildiz, general manager of IMS Health Turkey

One of the biggest transactions to hit the news lately, the US biotechnology giant spent some USD 700 million to gain the majority of the local generics manufacturer which was ranked 19 in value by IMS in 2011.

Although a leading Turkish pharmaceutical company, Abdi Ibrahim, occupies the number one spot, international companies have picked up several local companies in the top 30. Recent acquisitions include Dr Frik and Yeni Ilaç by the Italy-based Recordati and Eczacibaşi by the Czech generic drug maker Zentiva, which is a subsidiary of Sanofi.

CORENA’s Global Take On Business

As Turkey's investment profile continues to attract international attention, some local players are planning today for future buyouts. For example, Serdar Sözeri, general manager of Biofarma Pharmaceuticals, said that the company is preparing an exit strategy in the next three year: "We are going to add value to the company before selling it, to reach a value higher than the average assumption of what it is worth."

Other local companies are leveraging their competitive advantages to stay ahead in an increasingly crowded market. Erhan Baş, general manager of Bilim Pharmaceuticals, said, "There are 300 pharmaceutical companies operating in Turkey; Bilim is number 3, and will be number 2 in a very near future. The company's main differentiators are its flexibility, its ability to manage change, and its efforts in R&D."