Turkey: A Promise Restored? - Pharmaceutical Executive


Turkey: A Promise Restored?

Pharmaceutical Executive

Toll of progress

This nationwide effort to boost access and quality in healthcare imposed a hefty cost on the growing pharma business. With government spending on pharmaceuticals increasing from $2.3 billion to $8.7 billion between 2004 and 2011, drug price cuts were inevitable. But, having established in 2004 a cross-national reference pricing system pegged to a basket of prices that included low-price countries like Spain, Italy, Portugal, and Greece, as well as France, Turkey found itself locked in footstep with the economic crisis in Europe in a way that was out of proportion with its potential for long-term growth.

In December 2009, an across-the-board pricing decree slashed the prices of both original and generic drugs. The decree set the sale price to the wholesaler of original drugs with a similar generic on the market at a maximum of 66 percent of the reference price; similarly, generic drugs could only be sold to wholesalers at up to 66 percent of the original drug's reference price. Further price cuts were imposed in 2010 and 2011; and by that point at least two of Turkey's price referencing countries were on the verge of bankruptcy. The result was that by 2012 Turkey had the lowest per capita health expenditure amongst OECD countries, and drug prices were 30 percent to 50 percent lower than the lowest European prices.

Yet the Turkish economy was still growing at a healthy pace. Real GDP growth for 2010 to 2015 is predicted at around 4 percent, sustaining the trend between 2004 and 2009, and still way above EU rates. While cost containment and budget control are legitimate concerns, many observers interviewed by Pharm Exec believe the government overreacted. "It was going into Greece mode," said Jeff Kemprecos, Executive Director, Public Policy and Corporate Responsibility at Merck. "You could understand in 2007 and 2008, during the global economic crisis, that Turkey would want to ensure its pharma healthcare budgets weren't exploding, but by 2011 the country had been growing at a pretty good clip."

Nevertheless, by 2012, with the country's per capita drug spending far below historic norms, the Turkish pharma sector's prospects were in free fall. The drugs sector is estimated to have contracted by 25 percent in real terms since the 2009 pricing decree. Kemprecos observes that the contraction meant that international industry executives, while still interested in Turkey, "started to discount it as a major country in their portfolios." For Murat Yesildere of Egon Zehnder International, the situation led to international companies beginning to see Turkey more as a commercial sideline than a regional hub or manufacturing base where it is necessary to put down real roots. The preference right now is to "just ship their products in and get their margins without committing to a strong investment base. If they need to move out tomorrow, they can." Most of the foreign company manufacturing hubs established a decade ago, he explains, have now been abolished, divested, or closed.

As for the domestic companies that had big growth plans, the cuts depressed their values and left them vulnerable to takeover. A lot of the Turkish players—Mustafa Nevzat, Dr F Frik İlaç, Yeni İlaç, Cenovapharma—have been bought up by foreign companies. Turkey's Association of Research Based Pharmaceutical Companies (AIFD) predicted in 2008 that the sector would achieve annual inward investment of $1 billion from foreign companies by 2015. Last year, the actual investment was below $50 million. "The situation is not sustainable for our industry," AIFD told Pharm Exec late last year. The focus should be on structural reforms and making savings in areas of healthcare other than drugs, such as hospital treatment. After all, AIFD added, "there is not much left to cut in pharmaceuticals."


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