When the Turkish Ministry of Health implemented its strategy to transition from import pharmaceuticals to manufacturing them at home in 2016, the local industry leveraged the situation to invest in new technology and increase their manufacturing capacity. A few multinational innovators took the opportunity to invest in their own plants, but most chose to partner with local players through contract manufacturing agreements.
The number of pharma production facilities in the country went up by almost a third from 2015 to 2020, and production of pharmaceutical products increased 52 percent in that period, according to TurkStat and the Pharmaceutical Manufacturers Association of Turkey (IEIS).
In fact, 2020 was a record-breaking year after pharma exports reached USD 1.84 billion.
Becoming one of the world’s leading pharmaceutical producers and exporters is one of the main objectives of the Turkish industry, according to the most recent IEIS report.
“I believe that the domestic price pressure has been driving companies to sell products abroad; that is why medicine exports have consistently increased over the past five years. There is a huge gap between the prices you get abroad for medicines from the ones you get in Turkey because the government uses a special exchange rate… I foresee this trend, of companies manufacturing in Turkey for foreign markets, will continue in the next years,” explains Savas Malkoc, secretary general of IEIS.
The low prices referenced by Malkoc translate into low margins for manufacturers in an already crowded market. As a result, Turkish players have been forced to look elsewhere for profits.
“It helps that Turkey is a strong market with a sizeable population that enjoys almost universal healthcare coverage, but the pricing system is a difficult challenge for the industry… We believe that the Turkish market will not continue growing due to the low profit margin; that is the reason we are looking for opportunities abroad,” asserts Ufuk Kumrulu, chairman of Polifarma, a leader in parenteral solutions that generated 32 percent of its sales in export markets in 2020. “Exports are crucial for the company’s future and ambitions,” he says.
The situation is not so different for DEVA, a 63-year-old company acquired by Swiss investors in 2006. International markets were a big part of the strategy when the new ownership took charge, according to its current CEO and chairman of the board, Philipp Haas, “the new manufacturing facilities, from both a quality and capacity point of view, were built with the objective of exporting into high-quality developed markets. It will help us maintain our great quality but at lower costs.”
The company has a direct presence in the United States, Germany, Switzerland and a few other markets, and believes that its strategy is aligned with Turkey’s since the country is looking to reduce the pharma trade deficit.
In the first quarter of 2021, President Erdoğan announced a new innovative reform package focusing on the economy and legal system. That reform package included policy changes to increase Turkey’s participation in global value chains, explains Burak Dağlıoğlu, president of the Presidency’s Investment Office, “we, as a country, follow, attach importance to, and support the life sciences industry with all our relevant institutions.”
Where to go?
Being capable of manufacturing a wide range of quality products is only one part of the value proposition from Turkish pharma manufacturers. There is also the unique geographical location of the country, at the crossroads between Asia and Europe, and the relative cost of manufacturing. According to 2018 data from Eurostat and the OECD, the labor cost per hour in manufacturing was USD 5.6 in Turkey, almost ten times lower than Germany and lower than competitors such as Romania, Poland, or Bulgaria.
As the general manager for Novartis in the country, Avinash Potnis, puts it, Turkey has a unique value proposition, offering “European perfection at an affordable cost.”
This assessment is shared by Dogan Taskent, board member of the Swiss Chamber of Commerce and R&D head for local manufacturer Atabay: “The Turkish pharma industry is highly regulated and follows international GMP, ICH and PIC/S standards. That means that Turkish pharma manufacturing is world-class in terms of quality but less expensive. Nearshoring is another advantage since the country is close to Europe and the MENA region.”
The big dilemma for companies is where to go. Different companies have taken different approaches that match their product category.
Last year, Turkish-made pharma products were exported to 177 countries, primarily to the European Union (EU), the Commonwealth of Independent States (CIS), North Africa and Middle Eastern countries (MENA); Asia was the biggest export region and South Korea the leading market with a whopping 33 percent of total exports valued at USD 616 million.
GEN, a manufacturer of complex generics and orphan drug distributor, opened an office in Russia in 2020 and another in Uzbekistan to support their presence in Azerbaijan and Kazakhstan. “We are leveraging Turkey’s historical ties and advantageous geographical location to strengthen our presence in CIS countries, but, since our objective is to be a major global company, we are also targeting Europe,” says CEO Abidin Gulmus.
Turkey’s market leader and largest pharma company, Abdi Ibrahim, is also emphasizing the importance of exports markets since close to a fifth of their revenues are generated in the 60 countries they export to, including Canada, Europe, South Korea and the Middle East.
But, unlike most Turkish competitors, Abdi has manufacturing operations abroad (Algeria and Kazakhstan) and is planning to open affiliates in Germany and Saudi Arabia. “Internationalization is not an option, it is a path we must take because of the limitations in the Turkish market,” says CEO Süha Taşpolatoğlu, warning, however, that none of it will be possible without continued local success, “since Turkey is our main source of revenue, we must continue leading the market if we are to expand abroad.”