AiFD Vice Chairman Engin Guner On Price Cuts In Turkey And Mounting Pressure On Industry: An Interview With PharmAsia News (Part 2 of 2)

A former law maker and leader of the Turkish parliamentary delegation to the Council of Europe, Engin Guner knows about how policy works. The vice chairman of the Association of Research-Based Pharmaceutical Companies (AiFD), which represents Big Pharma in Turkey, emphasizes that government price cuts and related policy challenges, combined with currency depreciation, are taking a heavy toll on the industry.

Many of his member companies seem to agree, with several multinationals, including GlaxoSmithKline PLC, Novartis AG and Sanofi SA, recently singling out Turkish price cuts during earnings presentations with analysts (Also see "With December Approaching, Are More Turkish Price Cuts On The Way?" - Scrip, 1 Nov, 2011.). Turkey, unlike many emerging markets, has a government-run insurance program that helps to increase sales volume for drugs, but it also makes price cuts more likely than in markets where patients pay mostly out-of-pocket.

The Istanbul-based AiFD represents 37 research-based pharmaceutical companies operating in Turkey, of which 90% are multinationals. AiFD members include Big Pharma and large biotechs, such as GSK, Novartis, Sanofi, Abbott Laboratories, Pfizer Inc., Amgen Inc. and Roche AG.

Despite a bumpy ride over the past two years, Guner is optimistic about prospects for long- term growth in the world's 12th largest pharmaceutical market, and predicts that acquisitions are likely as Big Pharma tries to gain a stronger foothold in the country.

Guner recently sat down with PharmAsia News to discuss the state of the Turkish industry and where he sees the market heading.

In part 1 of this interview, Guner discussed the recent Turkish price cuts and predicted future cuts may be on the way (Also see "AiFD Vice Chairman Engin Guner On Price Cuts In Turkey And Mounting Pressure On Industry: An Interview With PharmAsia News (Part 1 of 2)" - Scrip, 4 Nov, 2011.)

PharmAsia News: Your April survey shows that 47% of AiFD members have pulled as many as three products from the Turkish market. The same survey shows over 50% cancelled investment in Turkey due to the policy climate. Do you expect this trend to continue?

Engin Guner: Conditions may force the firms to consider such decisions in the future, particularly if the government's focus on price cuts continues and materializes. But delisting or exits is definitely a strategic and commercial decision of each member firm according to their own dynamic and conditions.

PharmAsia News: How about clinical trials and R&D in Turkey?

Guner: It is obvious that the existing environment does not encourage more R&D investment and clinical trials in Turkey. Innovative, original pharmaceutical manufacturers globally invest about $127 billion in R&D every year. Turkey's share is around 0.039 % approximately, with an amount of $50 million.

However, we strongly believe that Turkey has a great potential in this field and it can increase its share to much higher levels, if the right policies are put into place and implemented with a long-term perspective.

PharmAsia News: Several MNCs have been rumored recently to be in negotiations with local Turkish generic makers for acquisitions or partnerships. For example, GSK was reportedly among three bidders for Biofarma Pharmaceutical Industry Co. (Also see "GSK Reportedly Bidding For Turkish Biofarma, Local Manufacturing Key To Market Registration" - Scrip, 14 Apr, 2011.)andEli Lilly & Co., it is said, is in partnership talks with Mustafa Nevzat Pharmaceuticals (Also see "Lilly Among MNCs Scouting In Turkey For Local Partners As GMP Inspection Backlog Continues" - Scrip, 12 Oct, 2011.).Why do you think there is such interest in local manufacturers?

Guner: We all know that the Turkish economy is performing extremely well compared to other economies, and I also believe that in spite of above mentioned difficulties Turkey's pharmaceutical market has still a great potential for growth.

The population of 73 million is mainly young at the moment, but it will get older. As the access to medical services increases in parallel to the welfare of the country, so will the need for high quality, sustainable pharmaceutical services.

PharmAsia News: Given the policy challenges you've mentioned, what kind of dealmaking makes most sense for multinationals in Turkey?

Guner: Turkey's pharmaceutical market has its own dynamics, opportunities and risks. The regulatory environment and budget concerns at present put some pressure upon the pharma industry. Certainly all current and potential players in the market are very conscious about these factors, but also consider the huge potential future in this country and make their decisions accordingly.

There are strong local manufacturers with good production capacity, quality and technological infrastructure in Turkey. They offer an attractive option for the international manufacturers intending to enter in the Turkish market or to increase their production capacity in Turkey. So it should not be surprising to hear new mergers and acquisitions in the market.

PharmAsia News: Do you also anticipate companies from other emerging markets looking at Turkey? Hikma Pharmaceuticals PLC, for instance, has hinted at a potential acquisition in Turkey (Also see "Hikma Looks To Be Partner Of Choice In MENA Region Via Acquisition Of Promopharm" - Scrip, 5 Oct, 2011.).

Guner: Emerging economies like China, India and Brazil have strong pharmaceutical industries themselves. It is only natural for their companies to look for new markets. Therefore I expect an increasing flow of companies from these countries into the Turkish market.

PharmAsia News: Access to medical care has increased in Turkey due to the expanded National Health Scheme.You have mentioned that increasing medical expenses are primarily due to increased access, not to drug prices. Can you talk more about this?

Guner: Although an increase in public prescriptions of 10% has taken place between October 2010 and May 2011, the public drug expenses increased only by 1%. In the period between January and May 2011, while public prescriptions have increased by 17%, cost per prescription has decreased by 9.5%.

Total market growth between 2008 and 2010 is 6.3% in volume (from 1,477 million boxes in 2008 to 1,570 million boxes) while in value it has even slightly decreased (from $9,835 million to $9,825 million). In other words, the value increase stemming from the additional 100 million boxes has been assumed by the Turkish pharma sector.

We express our views and concerns clearly during meetings with government officials, as well as in interviews with the press, since we believe that this situation is not sustainable any more.

PharmAsia News: You also have highlighted the impact of foreign exchange rates. Recently the Turkish lira has devalued slightly, what will be the impact to the industry?

Guner: I would not call it a slight devaluation, since its effect on the industry is rather heavy. During the global economic crisis in 2009, the government, in the aim to control and manage the budget, started the implementation of a "global budget for drug expenses" within the scope of the medium-term plan, and a ceiling level for drug expenses has been determined.

The "Global Drug Budget" for 2010, 2011 and 2012 is approximately €24 billion calculated according to the exchange rate of TRY1.9595 in 2009. However, as of September 9, 2011, this figure corresponds to €19.5 billion, according to the three-month average euro exchange rate. In other words, an approximate reduction of €4.5 billion has been experienced in the "Global Drug Budget" because of the exchange rate difference, and this additional burden is again carried by our pharmaceutical industry.

PharmAsia News: Thank you for taking the time. Any final thoughts?

Guner: Before closing, I would like to emphasize that AiFD strongly believes that Turkey has important potential and necessary dynamics to become a country providing widespread and high-quality healthcare services, and manufacturing and exporting highly value-added medicines. And that AiFD is willing and ready to collaborate with the government and all sector stakeholders to ensure this outcome.