Turkey's new drug pricing decree will shrink Pharma industry by 25%, say drugmakers

December 4, the effective date of the new drug pricing decree in Turkey, marks the beginning of a period of decline in the Turkish pharmaceutical industry where, initially, a contraction of about 25% is expected. In preparation for difficult times, drugmakers are reconsidering their investment and employment plans, beginning layoffs, with projections of a higher number of university graduates losing jobs in 2010, according to the Turkish research-based drug industry group the AiFD.

Warning that the new pricing decree carried serious risks for the future of the pharmaceutical industry, Engin Guner, vice chairman of the AiFD, said: 'It is not possible to see an improvement in the provision of drugs and health-care service by further restricting available resources.'

In its last global drug market forecasts, IMS Health identified Turkey as one of the Pharmerging markets, but also warned of problems there (The Pharma Letter October 8). The seven pharmerging countries - Brazil, Russia, India, China, South Korea, Mexico and Turkey - are expected in aggregate to grow by 12%-14% in 2010, and 13%-16% over the next five years. Turkey, however, may be impacted significantly by new measures intended to reduce the level of health care spending in those two markets. For 2009, according to estimates by Espicom Business Intelligence, the Turkish pharmaceutical market is valued at $4.5 billion, with per capita spending on drugs at $62.

AiFD industry survey shows poor outlook for 2010

A recent survey of the senior executives of the AiFD members, an umbrella organization of 40 research-based pharmaceutical companies, disclosed expectations that the industry would face formidable difficulties during year 2010. 90% of executives who responded to the survey stated that their operations would be adversely impacted. 37.5% of the respondents voiced concern that layoffs in the pharmaceutical industry, which employs about 25,000 people totally, could exceed 10%, while 31.3% predicted that dismissals would be beyond 20%. When asked about the decree's impact on R&D investment, 50% of the respondents expressed the view that, next year, this would be down by more than 10%, while 12.5% predicted a contraction beyond 20%. Finally, 81.3% of the executives surveyed stated that the legislation introduced with the decree could have a negative effect on the entry of novel drugs into Turkish market.

Improvement in drug and health care service is impossible without allocation of
resources

Giving his assessment of the effectiveness of the new decree, Mr Guner noted that the industry has  supported the government's health reform efforts since 2004, and said: 'We have selflessly given our continued support for our government , in order to bolster patients' access to drugs and other health care services, to consolidate stability, and to help ensure that transparency and ethical practice dominates our national pharmaceutical industry. Today, Turkey is one of the countries that has the lowest drug prices in Europe.' 

He continued: 'With the new decree, drug prices in Turkey are now reduced to about 45% below that in countries which have the lowest drug prices. Drug and health expenditure in Turkey is still far below the Organization for Economic Cooperation and Development (OECD) average. More resources need to be allocated to enhance our patients' access to drugs. Yet, our government is trying to improve access to drugs without incurring extra costs. The new pricing decree is expected to cause about 25% contraction in the industry, with a cap imposed on total drug expenditure next year of 14.6 billion Turkish lira ($9.71 billion), which is to say that the spending next year would be below this year's level. Unfortunately, improving drug and health-care service by restricting resources is not possible.'

Future of pharmaceutical industry is at risk

The new pricing decree treats research-based pharmaceutical companies, who, spending up to $100 billion annually in R&D investments worldwide, develop innovative drugs to improve the quality of human life, with generic manufacturers who do not incur any R&D cost, said Mr Guner. 'This approach will greatly complicate advancement of innovation in the country. Although the agreement that we have managed to reach at the last moment, just before effectiveness of the decree, is received as a favorable step, it fell far short of resolving our problems totally. This accord helped reduce the projected contraction to 25% from over 30%.' 

Moreover, he noted, 'although it provides assurances that, in the next three years, we would not see substantial changes that would further corner the industry, we must not forget that the industry will have to operate under challenging conditions, undergoing contraction during this period to remain afloat. Obviously, the current situation is far from an environment of stability and predictability which have always been the foremost priorities of the industry. Regretfully, serious risks are facing the pharmaceutical industry, where things are headed for the worse. We have already started seeing partly the bad signs, such as the decline in investments and the employment levels, and, unfortunately, we expect to see more of it next year.' 

The AİFD, he added, 'will maintain its constructive stance and remain available for cooperation and dialog to help solve the industry's problems, to consolidate patients' access to high quality drugs and health-care services, and to help ensure sustainability of these services. We trust that we shall see the same posture in our government and in all sector stakeholders.'