Pharma Manufacturing In Turkey: No More "Now You See It, Now You Don't"
By Louis Garguilo, Chief Editor, Outsourced Pharma
-- $22.8 Billion Emerging Market Holds Attention of Pharmaceutical and Outsourcing Industries --
Mention of Turkey in international market discussions can be compared to a game of hide-and-seek: You have to look hard to find it. Unlike the attention-grabbing BRICs (Brazil, Russia, India and China), or the high-flying Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan), Turkey doesn’t belong to a catchy emerging-market acronym.
A new report, though, forecasts the pharmaceutical market in Turkey to climb to just under $23 billion in 2015. That should help catch and keep the attention of the pharmaceutical and outsourcing industries.
Inci Ayyildiz, international commercial operations director for Turkey’s Mustafa Nevzat Pharmaceuticals, thinks the attention is overdue. “Turkey at this point has an advanced pharmaceutical industry in terms of installed capacity, production standards and technology. The industry consists of 300 pharmaceutical companies, produces around 8,000 drugs and employs around 30,000 people. This volume and $7 billion turnover makes the Turkish pharmaceutical market the world’s16th and Europe’s 7th largest.”
Ms. Ayyildiz is quoted in the 2013 CPhI Pharma Insights Turkey Market Report. The report says that in fact the pharmaceutical industry has been giving the country more attention of late, counting 134 foreign companies now operating there along with the 166 established local firms. Along with the growth in value of the domestic market, pharmaceutical exports have risen from $5.6 billion in 2010 to $7.5 billion last year, an increase of 40 percent.
The following are some key points for pharmaceutical and outsourcing companies when considering Turkey for investment and partnerships.
Generics Dominate; Some Eyes on Drug Discovery
Not unlike other developing markets, Turkey has grown on the back of its generics producers. Likewise, as it now emerges from earlier market phases, the Turkish industry and government aspire to new drug discovery and more advanced development and manufacturing activities. Companies such as Onko Koçsel, which grew by 11.5 percent in 2013 and forecasts growth to 38 percent this year, lead the way. Recently, Onko Koçsel has invested over $90 million for the development of a manufacturing facility for the production of oncological products.
Collaborations and partnerships will also be key drivers of an emerging R&D sector in Turkey. Multinationals are showing an increased interest in entering the market through business relationships. Big pharma such as Sanofi are already present, and according to Professor Burak Erman, department of chemical and biological engineering, Koç University, Astra Zeneca appears eager to bring research to Turkey as well.
Of course various factors, including socio-economic and geopolitical stability, government tax policies and regulations, and particularly intellectual property protection will play a role in how much big pharma and bio continue to target Turkey for opportunities.
Intellectual Property Protection In Practice
One area where Turkey would rather not be associated with other emerging markets is intellectual property protection. Unfortunately, many in the industry feel they are unfairly tainted with the IP concerns of other developing countries.
“Although certain negative impressions exist, Turkey’s system of intellectual property law is closely aligned with European standards. There is a satisfactory level of IP protection in Turkey. This is evidenced in the activities of the industry’s generic pharmaceutical manufacturers, which have begun to patent many of their own productions, reflecting a growing trust in Turkey’s system for IP protection,” said Mr Gökhan Gökçe, a partner in YükselKarkinKüçük, a Turkish law group that provides legal services to the industry.
Fatma Taman, general manager, PharmaVision, a large pharmaceutical producer based in Istanbul, believes negative impressions may stem from past events when some contract manufacturers produced a client’s product as a generic. He says contract manufacturers now have systems in place to protect against such issues arising. PharmaVision, for example, maintains an ISO/IEC 27001 Information Security certification. “We sustain our Information Safety Management System by involving our complete workforce, protecting the continuous workflow, preserving the business continuity and increasing the collective awareness through intercompany seminars, risk management studies and internal audits.” Taman says this internationally auditable certification provides its business partners with a high degree of confidence and demonstrates its commitment to its customers.
For third-party validation of these sentiments, an International IP Report published in January 2014 by The Global Intellectual Property Center (GIPC) under the US Chamber of Commerce, ranked Turkey 10th out of 25 countries in terms of patents, related rights, and limitations.
Real Concerns For The Growing Market
Where perception and reality meet in Turkey is the concern over the government’s price referencing and rate conversion policies. One hundred percent of those surveyed for the CPhI report responded that price referencing was “a highly negative aspect of the industry.”
Price referencing is the government’s system of comparing costs of production (ex-factory) prices in other countries, i.e., Portugal, Spain, Italy, Greece and France. The lowest price is set as Turkey’s reference price, with a percentage of that set as a ceiling price. This ensures prices are well below almost all other European markets, severely impacting profitability.
That impact is then compounded by the fixed euro-lira exchange rate used in the government’s price calculations. The current fixed rate of the lira to the euro is approximately 195, despite a more accurate value at approximately three liras, according to the CPhI Insights Report.
In addition to stifling profitability, this system dampens further investment by domestic companies in the R&D and high-value manufacturing sectors that the country wants to move towards. It can also give foreign pharmaceutical and outsourcing companies pause when considering partnering or investing in Turkey.
Incentives for Investment and Exports
On the other hand, the government in Turkey does support and work with the pharmaceuticals industry in some areas. It is open to direct foreign investment. To incentivize investment in new drug discovery and development, the government offers corporate tax relief. It provides access to research institutions, and can cover up to 60% of staff expenditures at accredited centers. The government is also working with the Pharmaceuticals Manufacturers Association of Turkey (İEİS) to move domestic pharmaceutical manufacturers to the development of high-value generics and biosimilars.
Manufacturers for their part are starting to look more to exports, particularly to gain profitability. This is also supported by the government and viewed as a way to help to reduce the country’s trade deficit. The İEİS has established a Turkish Pharmaceutical Exporters Platform to raise international competitiveness. With standards of pharmaceutical regulation and manufacturing comparable with the West, and a geographic location ideal for distribution across the Eurasian region, the Turkish industry certainly has its advantages.
Turkey has already witnessed direct foreign investment with multinationals like Sandoz and Novartis, and over the last year the market has seen several major acquisitions, according to the CPhI Insights Report. For one thing, the country remains attractive because of the healthcare reimbursement system, which has the government buying the vast majority of pharmaceuticals produced.
“Even contract manufacturing is looked upon favorably by the state,” comments Gökçe of law advisors YükselKarkinKüçük. “(I)n the coming five years we will continue to see multinational corporations invest in the Turkish market...At present, we know of several large global companies that are looking to make buy-ins.”