Situated in one of the globe's most active emerging markets, the Turkish pharmaceutical industry is undergoing fast changes, which could make or break major drug makers, according to Istanbul-based international consulting firm Egon Zehnder International.

The firm's leading consultant, Murat Yesildere, told PharmAsia News that there are two trends impacting Turkey that warrant close attention: an increasing interest in generic drugs and a need for multinationals to adjust to heated competition in a branded generics market.

The first trend is exemplified by multinational firms targeting large local players for acquisitions inside the industry, said Yesildere.

Mergers and acquisitions in the generics space have been active in 2009, according to consulting firm KPMG's Global Pharmaceutical M&A report, which noted the acquisitions of Barr Pharmaceuticals, Ranbaxy Laboratories and Zentiva.

One repeating theme of these deals is major emerging market players becoming acquisition targets. India's Ranbaxy was bought out by Daiichi Sankyo, and GlaxoSmithKline announced the acquisition of a 16 percent stake in Aspen Pharmacare, Africa's largest pharma company.

Turkey Draws MNCs

Turkey has attracted global players including Novartis, which established an 110,000 square meter factory in Istanbul in 2005 as one of seven strategically important production sites.

French giant Sanofi-Aventis is expanding production capacity in its Lüleburgaz, Turkey facility from 30 percent to 50 percent in 2010. Japan's largest drug maker, Takeda, set up a sales branch in Istanbul in October 2009 and plans to market blockbuster diabetes agent Actos (pioglitazone), after re-acquiring the rights from Eli Lilly (PharmAsia News, Oct. 2, 2009).

In July, Pfizer was reportedly lining up with leading Turkish pharmaceutical company Abdi Ibrahim in a deal. Founded in 1912, Abdi Ibrahim is family-owned with $850 million in annual sales.

The changing market has created plenty of opportunities in terms of business alliances, marketing diligence and talent searches, Yesildere said.

Featuring a young population, Turkey is the largest pharmaceutical market in the Middle East. Out of its 73 million residents, 56 percent are under 29 and 78 percent are under 44 years old. The Turkish prescription drug market stood at €6.54 billion in 2009 - ranked sixth in Europe and 13th worldwide. Generics account for 51.4 percent in volume and 35.3 percent in value. A May report from marketing firm Datamonitor added Turkey to emerging market bloc of Brazil, Russia, India and China (BRIC), saying big pharmas should not ignore BRICT in pushing innovative therapies (Also see "Opportunity Growing For Newer Therapies In Emerging Markets" - Scrip, 31 May, 2010.).

Heating Generics Competition

As the Turkish government tightens the country's health budget and pushes for lower drug prices, multinational drug makers eyeing the market need to position themselves well to attract talent and create more value to compete with local players.

Compared to Turkish counterparts, MNCs have the lead of rooted research and development and established brands for which they can charge a premium; however, international firms usually lack talent in regulatory affairs and commercial sales and marketing, Yesildere said.

"Multinational firms need a totally different mindset and totally different human resources," he said.

The need to strengthen marketing and sales is a particularly pressing issue in a branded market such as Turkey, where companies not only need to target opinion leaders, but also pharmacists, who have more say in helping patients selecting generics.

MNCs also have to learn to negotiate with distributors and to pay closer attention to returns on investment and profit margins, he said.

Local branches in Turkey are highly centralized and decisions are regularly made through headquarters, which are located far away from the local markets. In comparison, major Turkish players such as Abdi Ibrahim all have their own manufacturing facilities across Turkey and can make quick turnarounds in production and distribution.

To better compete with local firms, MNCs will need to be more flexible and dynamic.

Upcoming Referendum Raises Political Uncertainty

While the Turkish economy is not immune to the economic downturn and credit crunch, it has managed to come out of the crisis unscratched and even stronger.

While neighboring Greece and other countries were bailed out by Germany and the EU in a $1 trillion package, Turkey managed to grow total financial assets by 7.6 percent in the third quarter of 2009, according to a Deloitte report, which estimates the Turkish economy will grow by roughly 3.7 percent this year.

However, the nation is facing political uncertainty. A constitutional referendum on a number of changes to the constitution will be held on September 12, 2010, after being delayed from July.

Yesildere expects the referendum will likely clear the clouds over the country's economic future and prompt the rating agencies Moody's, Fitch and S&P to increase it to investment grade. Currently, Moody's rates Turkey Ba2, two levels below investment grade, Fitch raised its rating to BB+ in December, or one step below, while S&P boosted its ranking to BB in February.

However, harsh regulations still loom large. Last year, the Ankara administration ordered a wide-ranging price slashing measure, affecting around 4,000 new and generic drugs (Also see "Dusk And Dawn In Emerging Markets? Pharmas Find Growth Elsewhere Offset Turkish Price Cuts" - Scrip, 4 May, 2010.).

Meanwhile, a void in Turkish patent legislation also imperils the nation's IP protection image. The lag will allow violators of the patent law to walk free, warns the Association of Research-Based Pharmaceutical Companies, an umbrella trade organization for innovative drug makers in Turkey (Also see "Patent Infringers Will Walk Free In Turkey, Drug Makers Association Warns" - Scrip, 18 June, 2010.).

- Brian Yang (pharmasia@elsevier.com)

Turkey's Changing Pharma Market Scene: What Opportunities For MNC Drug Makers?

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