Turkey: Prospects in pharmaceuticals

Home to Europe’s seventh-largest pharmaceuticals sector and 16th largest worldwide, Turkey is aiming to continue expanding the industry as it welcomes the addition of new firms and investors. While a number of international companies have already set up shop in the country and several more are planning to follow suit, challenges remain for foreign entities, such as government pricing regulations and auditing demands.

Statistics for Turkey’s pharmaceuticals sector have steadily improved over the past decade, with the industry doubling its size to a current market value of around TL15bn ($8.32bn). Export figures have been particularly impressive, increasing by around 58% between 2007 and 2011, from $322.8m to $512.1m.

Several international firms are taking note. Japanese pharmaceuticals giant Otsuka has declared an interest in partnering with Abdi İbrahim, a domestic drug manufacturer. The Japanese firm employs some 40,000 people worldwide and broke international records with a $2.4bn initial public offering in 2010. The company is planning to establish a separate corporate presence in Turkey. “We plan to produce medicine under Otsuka’s umbrella in Turkey,” said Nezih Barut, the president of the board of directors at Abdi İbrahim, when speaking with local press.

Meanwhile, in June, Nihat Ergün, the minister of industry, told a convention in Boston that Baxter, a US-based pharmaceuticals firm, was planning to invest $180m in Turkey to help with the development of a new drug aimed at boosting immune system capacity.

Zentiva, a pharmaceuticals group based in the Czech Republic, is also interested in using Turkey as a base for the production of generic drugs. With the patents of many high-use drugs set to expire in 2013, the Czech firm said it sees the possibility for a massive revenue boost by increasing the production of generics.

“The patents of many drugs will expire in 2013. This will allow more access to quality drugs at low prices. It will be good for both patients and governments,” said Jerome Silvestre, the senior vice-president at Zentiva, while speaking at a meeting in Prague. “We will turn our facilities in Lüleburgaz into a production base for generic drugs by shifting the production of many drugs from facilities abroad to Turkey.”

Amgen, one of the world’s largest biotechnology companies, has also begun expansion into Turkey, following a spate of acquisitions that included firms in Brazil (Bergamo) and Turkey (MN Pharmaceuticals).

International firms still face some challenges, however. In an attempt to protect local industry, the government continues to enforce strict controls on conversion rates, often to the detriment of foreign companies. Most drugs are funded by the government, meaning prices are low compared to other emerging markets and European markets, according to IHS, a US-based company providing information services for a variety of economic sectors, including health care.

There are a number of challenges for domestic players as well. According to an August report by Deloitte Turkey, a number of policy reforms will be necessary to ensure that financing for public sector pharmaceuticals remains sustainable. Suggested reforms include adjustments in the pricing of pharmaceuticals, the structure of payments by patients, domestic health insurance, managing care for the chronically ill, and public education and outreach.

While the private sector continues to see play, public sector pharmaceuticals spending as a percentage of GDP has dropped from 1.4% to 1.17% in 2012 – a decrease of approximately TL700m ($388.18m). As the sector undergoes regulatory changes, however, it appears that the growing international element in Turkey’s pharmaceuticals market should be able to increasingly support the industry.