Mr. Ediz Günsel, could you introduce yourself to our readers ?
Yes; I have been with the firm over twenty years, including 5 years with PwC London. In my twenty years, I have focused on two major industries, pharmaceuticals and energy. Because of our industry focus globally and locally, I have been appointed country leader for the pharmaceutical and life sciences industry in Turkey.
I used to audit many large multinational and local pharmaceutical companies and involved in complex deals, so I had the chance to see miscellaneous parts of the pharmaceutical industry.
How do you see the Turkish pharma market?
Turkey has a great deal of potential, and it all comes down to how it is going to be used. In the PwC Pharma 2020 report, Turkey is shown to have the potential as a world future top ten market, up from its 16th position today. From a demographic perspective, not only the size matters – 76 million people -, but one of the important aspects of the Turkish population is that it is young population and ageing. According to the State Planning Organization’s (SPO) figures, Turkey’s population would reach to 90 million by 2050; and the average age is expected to increase from 29 to 40 years. In the last thirty years, average life expectancy has increased by 25%, reaching 74 years, as a result of positive health measures and government policies. Lastly, the country’s Gross Domestic Product is growing at very promising rates.
Now, it is critical how Turkey will position itself in the future: will it only be a good market to be in, or will it be a centre of excellence and regional power with regard to production, Research and Development (R&D), and export? Will there be Turkish companies in the global arena amongst top pharma companies? For your reference, the country’s is exporting USD 0.5 billion worth of pharmaceuticals for a total market approximate to USD11 billion
By 2023, the government wants to position Turkey as the world’s tenth largest economies. Today, Turkey is ranked 16th globally, therefore it is a very aggressive target if you look at the progression of other emerging countries. There is room for Turkey to expand outside its borders; the government is targeting USD 500 billion of exports.
The Turkish pharmaceutical market has been suffering from hefty budget cuts in the past years. How can the Turkish government on the one hand make life of the pharmaceutical companies so hard and on the other invite them to invest in Turkey?
I believe that the authorities should find a balance by incentivizing the appropriate industry aspects and niches. By this, I am not only referring to the encouragement of manufacturing facilities, but also boosting investments in innovation, both clinical tests and basic R&D.
Admittedly, developing an R&D industry is difficult. However, it is feasible given the right approach. For example, the case of South Korea could serve as a model, where specific government policies helped to develop its pharmaceutical R&D industry over the past 5 years and as a result is now ranked among the top seven countries achieving 14 times growth in the industry. Therefore, if the government can encourage investments in pharmaceutical R&D, this can help to develop the industry and would increase employment levels.
In addition to this, I believe that there is a big potential for local companies to move through being global players in order to ensure their sustainability. Rather than competing only at a local level and MNC’s, local companies could form strategic alliances and invest more in R&D to thrust them into the global arena. I believe this is feasible as we are seeing some local companies take such measures.
On the other hand, pricing and pressure on margins continues to be a challenge for the industry given the average prices have been decreased approximately by 50% since 2009 placing the sector at a critical point. It is also argued in the industry that this situation is diminishing Turkey’s export potential by driving investments in production facilities away and eroding competitiveness.
In Turkey, the State is not only the control mechanism but also the most important customer through the State Hospitals and Social Security Institutions. Can this be a sustainable model? What would need to be changed or implemented?
Given that Turkey is an emerging country, I believe this is indeed a suitable model for the short to medium term. However, as the market develops in the longer term, I believe that there should be a shift towards a more sustainable market model. Nevertheless, I am confident that the world’s governments will always have a role to play, in varying degrees, with regards to healthcare as it constitutes a significant proportion of its spending.
Overall, the Turkish government has intervenedheavily to the pharma sector over the past five years – with its heavy discounts, stretched reimbursement policies and exchange rate fixing, for instance. Of course, there are many players in the industry that tested by these policies, including producers, distributors, and pharmacies. From this perspective, pricing continues to be a top priority for the industry at the moment which may be a hinder for further intvestment in the industry.
R&D identified as one of the key sectors for Turkey’s development over the next 30 years according to PwC’s Turkey in 2041 report. But this is the long term view. While Turkey has received many investments in production capacity or regional support, it is lagging behind with the investment in R&D. How do you explain this?
Simply put, there is a lack of incentive systems to stimulate growth in R&D. I believe that we cannot expect MNC’s to generate research activities in Turkey since these are largely carried out elsewhere, but they could certainly bring about developmental activities through clinical trials. However, from a local perspective, this is a difficult market since it requires collaboration with academic, governmental market participants. Therefore, I believe that the philosophy has to change in Turkey and that the government should play a more central role in the promotion of these activities since they are long term investments.
PwC has established since 1981 a strong presence in Turkey – 5 different offices, 1250 specialists operating in the country. What is the importance of pharmaceuticals and life sciences for PwC’s overall operations in Turkey?
I see a lot of potential for PwC Turkey’s growth in the future despite our current strong position in the market. To put it into perspective, PwC Turkey is considered a midsized enterprise compared to our global operations, despite the fact that Turkey is the 16th largest world economy we are not 16th largest network firm. The reason for this is twofold. First, PwC has only been present for a relatively short period of time in Turkey, compared to our company’s extensive history. Secondly, and most importantly, our profession has grown because of regulation – especially from the assurance perspective. Therefore, as local regulations, policies and markets develop, so will our business through the creation of the necessary foundations for the expansion of our portfolio of assurance, tax and advisory services. Nonetheless, I expect that we will experience significant commercial growth in the near future in particular with the implementation of the new Turkish commercial code, among other legislation challenges. Given the pharmaceutical industry’s growth potential with the parallel need for professional services, I believe our pharmaceutical and life sciences’ services will take its fair share in this growth. In terms of PwC Global’s perspective we see an important interest in Turkish market. For example PwC’s Pharma University organization will be held in Istanbul in June 2013 for the first time. Over 200 participants/industry specialists within PwC Global pharma network is expected to participate this event. Although it is PwC internal event, clients and external speakers from the industry are usually invited to the event to discuss around the industry issues and how PwC can help. I believe it shows how important PwC views the Turkish market.
Past reports from Deloitte and BCG highlighted Turkey’s export potential and advantages as an investment destination. Is the pharma team within PwC working on a research project to outline Turkey’s pharmaceutical industry?
Over the past four months, we have been working on a hefty project on the local pharmaceuticals market along with AIFD (Association of Research Based Pharmaceuticals), and all relevant parties. Within this document (Turkish Pharma Sector Vision 2023 report), it is prescribed the strategic direction required in Turkey as well as highlighting the key issues in the sector while mapping the inter connections with the governments existing developmental strategy. Overall, our object here is to outline Turkey’s objective for the pharmaceutical industry’s advancement. Relevant government bodies (Ministry of Health, Ministry of Science, Industry and Technology, Ministry of Development, TÜBİTAK, etc), sector players, universities, sector NGOs contribute the Vision 2023 report with their opinions.
When completed, by the year end, we intend to publish the report as it contains a wealth of information, relevant to a broad range of stakeholders.
How has the market demand evolved over the past five years in the country? To what extent are PwC’s services tailored to this demand?
PwC has always had a strong team and solid reputation, particularly in assurance, tax and deals/transaction services. We have a focused team with deep industry knowledge. Needless to say, I consider PwC as the leading professional services company in this field within Turkey, with a comprehensive client portfolio – both local and global.
Nonetheless, as the industry develops, so do the requirements of our clients. Therefore, in order to stay one step ahead and better serve our clients, we have identified and categorized four main challenges in the market and mapped out the respective solutions we can provide to our clients. These categories are composed of first, pricing and operations; largely consultancy services covering sales force effectiveness, performance improvement, supply chain management, etc… Second, Compliance with laws and regulations; dealing with issues such as transfer pricing, VAT refunds, compliance with new commercial codes – all with their own dedicated teams. Third, and perhaps less pressing issue for the time being but I see that as increasingly important matter in Turkey is related to reputation management addressed by our sustainability team. Finally, we are able to advisory solution on the matter of competition. As we expect to see an increase in consolidation of the large number of pharmaceutical companies present here, which also includes M&A related matters under this heading.
PwC Turkey has put in place country desks such as French, German, UK, Italian, Middle East etc for a number of years. This guides us to understand what are Turkey’s privileged trade partners. The pharmaceutical industry is witnessing the raise of pharmaceutical giants from the East (India or China) while the sector was traditionally dominated by Western MNC. How is this changing your strategy, how advanced have you been in partnering up with these new giants closely looking at Turkey?
At the moment, we do not have an Indian or Chinese desk since they are not as of yet significant investors in Turkey. However, we are quick to adapt and once this trend is reversed, we will certainly act accordingly, for any country. After all, India and China are certainly competitors to Turkey with their low priced products which could wipe out the local market. For this reason, we have not seen a large degree of their products penetrating the local market.
Having said that, if mutual benefits are found from the respective governments, then we can expect to see mutual investments as well. We are beginning to see increased investment interest in the energy sector from the Chinese, for instance, with the ongoing nuclear and coal power plant discussions. On the other hand, we are also witnessing their gradually increasing presence in the pharmaceutical sector by means of strategic alliances with local companies on a number of products. Similarly, there are also investments being made into China by local companies in various sectors.
Although it is an interesting suggestion, our policy so far is to determine the potential trade between countries.. However, we are aware that this dynamic could change and we are ready and able to adapt to that through our global network and reach.
What are the skills required to be a successful pharma leader in Turkey?
In a nutshell, I would say that it is crucial to possess the right mentality. That is, to be innovative and open. In addition to this, like in any other country or business, good communication and management skills are also important. In my experience in with dealing with pharmaceutical business leaders, I have come to realize that most, if not all of these companies are headed by highly qualified and capable persons comparable. Apart from having great educational backgrounds, I would attribute to their success the fact that a great deal of Turkish business people are highly motivated and hungry for success.
In terms of Turkey’s skillset, however, I believe it is necessary to strengthen its set of basic skills. Although we have an abundance of professionals such as doctors, for example, we are lacking in the areas of basic sciences like math’s, physics and genetics since these fields lack investment and employment opportunities.
