The European Federation of Pharmaceutical Industries and Associations (EFPIA), a key nongovernmental organization (NGO) for the global pharmaceutical industry, has published an important report regarding the global pharma sector. According to the “The Pharmaceutical Industry in Figures, 2023 Report” the pharma sector is globally at an extremely critical juncture. As a result of rapid changes in medical technology, the research-based pharma sector seems to be on the brink of a revolution. This transformation primarily stands upon the trends of personalized medicine, cell and gene therapies and innovative treatments. Patient well-being is strategically redefined in this context, as centuries-long headaches of mankind such as HIV/AIDS-related conditions and severe cancers are starting to become issues of the day. In addition, pharmaceutical production expanded during the last two decades as well, and EFPIA area pharma production climbed to 340 billion euros ($364.88 billion) in 2022 from 127 billion euros in the early millennium.
However, this piece does not focusing on the global market. I would like to focus primarily on the key indicators of the Turkish pharmaceutical sector. In the report, Türkiye is being designated among "pharmerging" countries. The term "pharmerging" refers to 21 countries that are ranked by IQVIA, which is a company specializing in health information technology and clinical research, as high-growth pharmaceutical markets. The countries are Algeria, Argentina, Bangladesh, Brazil, Colombia, Chile, China, Egypt, India, Indonesia, Kazakhstan, Mexico, Nigeria, Pakistan, Philippines, Poland, Russia, Saudi Arabia, South Africa, Türkiye and Vietnam. These are countries with comparatively low positions in the pharmaceutical market but show a fast pace of growth with immense future potential. Lifestyle diseases such as cardiovascular diseases, diabetes, respiratory disorders, cancers and rare genetic diseases are key in the future of "pharmerging" markets.
As we skim through the major figures regarding Türkiye’s pharma sector in the report, we see a comprehensive picture of these "pharmerging" phenomena: R&D investment in the pharma sector in Türkiye in 2021 has reached 71 million euros, according to the latest statistics. Pharmaceutical production in Türkiye in 2021 has reached 3.497 million euros. The sector's employment reached an immense figure of 42,291 employees in 2021, indirect employment excluded. In this context, the pharmaceutical market value in Türkiye in 2021 reached a historic record of 6.496 million euros. On the other hand, despite this expanse, still, VAT rate applicable to medicines in Türkiye is 18% as of 2024, which is higher than the European Union average, and the sector suffers a heavy burden of taxation.
As a result of the rapidly growing welfare state during the Justice and Development Party (AK Party) governments over the last two decades, total spending (public and private) on health care as a percentage of GDP at market prices in Türkiye reached 4.6% by 2020, according to the report. Total spending (public and private) on health care as a percentage of GDP at market prices in Türkiye was 2.4% in 1980. It increased to 4.6% in 2000 and 5.0% in 2010. With a slight decline in the last decade, it was 4.6 in 2020. This shows the immense trend of expansion in the pharmaceutical sector in Türkiye.
Despite this developing trend, Türkiye is struggling to boost its domestic production. While the pharmaceutical exports from Türkiye in 2021 were 1.42 million euros, the pharma imports to Türkiye in 2021 were 5.99 million euros. This shows a significant trade deficit of 4.55 million euros by 2021, which is estimated to have increased since. It would not be an exaggeration to say that Türkiye has a serious, predominantly foreign, dependence on medicines.
As particularly important data, the share of generics and biosimilars in total market sales (at ex-factory prices) in the country was 29% by 2021, which is slightly more than the EU average. To note, this rate is highest in Poland, Austria and Latvia in the EU, 55.8%, 48% and 44%, respectively.
Let us look at the public budget side of the equation, as well. This is especially important for Türkiye, alongside with a promising private sector, as the public has become the dominant buyer in the market, especially after the General Healthcare Insurance Reform of 2012.
The Social Security Institution (SSI) is the public body financing the health care sector in Türkiye, both the public and private sectors. In 2023, SSI’s health care budget was over TL 544 million ($17.6 million), exceeding the expected TL 380 million. Although the amount is projected as TL 851 million for the budget year of 2024, it is expected to easily exceed TL 1 trillion by the end of the year.
According to EFPIA’s aforementioned report, payment for pharmaceuticals by the compulsory health insurance system and national health services (ambulatory care only) in Türkiye in 2021 was 5.802 million euros. This amount has almost doubled in recent years.
With this position as almost a single buyer in the Turkish domestic pharma market, SSI controls the market. Within the structure of monopsony, SSI can be able to determine the prices and even the foreign currency exchange rate to be applied for export drugs, medicines and pharma products. With its policies, expanding health care financing budget on the one hand and implementing strict price control mechanisms, SSI is the critical actor in Türkiye for "pharmerging."
Despite this impressive picture, Türkiye has great challenges ahead for its pharma economy. European Commission's Türkiye 2023 Report, which was published on Nov. 8, has keynotes on these challenges, “While Türkiye adopted several measures to adjust the localization and prioritization schemes for pharmaceuticals, EU’s assessment on whether Türkiye has completed the implementation of all findings in the Arbitrators’ Award is still ongoing.”
On the other hand, the EU also recognizes the significant developments in the Turkish market: “Türkiye adopted legislation designed to align with the latest acquis on good clinical practice and pharmacovigilance. Türkiye aligned to a large extent its cosmetics regulatory framework with the acquis by adopting a new cosmetics regulation in May 2023.”
The EU also underlines the need for the establishment of legal, technical and economic infrastructure for a fully fledged domestic pharma sector in Türkiye: “Another area of continued concern is the absence of an effective system for protecting undisclosed test and other data generated to obtain marketing approval for pharmaceutical and agrochemical products. Even though Türkiye has had in place a regulatory data protection regime since 2005, the scope is limited and excludes biologics and combination products. The length is also limited, reducing the effective protection period in Türkiye. Turkish law links the length of the regulatory data protection with the duration of patent protection. Hence, once a product is considered off-patent, it automatically loses its regulatory data protection.”
In conclusion, with this prominent yet controversial advice, the EU advises supporting investments in the country in strategically chosen sectors and counts the pharmaceuticals sector among these.
The Turkish state is keen on supporting the emergence of the pharmaceutical sector in the country in the forthcoming decades as well. “The supply chain of pharmaceutical and medical supplies will be further strengthened by expanding the scope of Health Market Application through the State Supply Office.” This was one of the promises of the Republic of Türkiye in its 2023-2025 Pre-Accession Economic Reform Program of January 2023 presented to the EU.
According to the program, “within the scope of the Technology-Oriented Industry Move Program aimed at increasing value-added production in 2021,” Türkiye focuses on providing extensive support programs to the sectors with medium-high and high technology levels are "chemistry," "pharmacy" and "manufacture of medical and dental equipment."
However, the future of the Turkish pharmaceutical industry depends on the implementation of cost-effective programs on public health care insurance schemes and finding a balance between budget control and market sustainability. With the current unsustainable differentiated euro exchange rate applied to medicines, which is helping to control the budget but deterring global pharma companies from investing in Türkiye, with the immense expanse in the SSI’s health care expenses, and with the current trade balance deficit exceeding 5 billion euros, Türkiye is required to implement very urgent reform measures as to keep up with the very generous health care coverage of its General Healthcare Insurance System. This is both a public health, macroeconomic sustainability and economic independence challenge for the country.
