With December Approaching, Are More Turkish Price Cuts On The Way?

The government of the world's 12th-largest pharmaceutical market has enforced steep price cuts on drugs in each of the last two years, both times in December.

Turkey has attracted considerable attention in recent years from multinational pharmaceutical companies looking to grow in emerging markets. But the government of the world's 12-largest pharmaceutical market has also enforced steep price cuts on drugs in each of the last two years, both times in December. With December quickly approaching, are a new round of price cuts on the horizon?

Engin Guner, vice chairman of the Turkish Association of Research-Based Pharmaceutical Companies (AIFD), sees new price cuts as "a strong possibility."

"It's difficult to say how deep the cuts can be," he told PharmAsia News, musing that a new round of cuts could be on par with previous rounds. "We can look at the results of the most recent cuts, in 2009 and 2010," he said. "Both of them took place in December."

And Guner knows a thing or two about how policy works.

A former lawmaker and member of the Turkish Grand National Assembly, Guner served as the deputy for Istanbul in the assembly and a leader of the Turkish parliamentary delegation to the Council of Europe Parliamentary Assembly. Prior to that, Guner worked for the Council of Europe in Strasbourg, France, for 17 years.

Continual Pricing Pressure, Or Not?

With multiple rounds of price cuts in Turkey and other emerging markets like China, investors and Big Pharma executives have begun to grapple with a key question: Are continual price cuts the new normal?

GlaxoSmithKline PLC CEO Andrew Witty, for one, doesn't think so, believing there will be a stabilization period between government price cutting actions.

"I think the likelihood of [pricing pressure] becoming a chronic year-in, year-out phenomena is relatively unlikely," said Witty during the U.K. company's Oct. 26 earnings call, answering a question from Bernstein analyst Tim Anderson.

The recent price cuts in Turkey, along with a cut in Russia, contributed roughly "three points of price pressure in the pharma emerging market business," Witty noted. Turkey, unlike many emerging markets, has a government-run insurance program that increases volume but makes price cuts more likely than in other markets where patients pay mostly out-of-pocket.

Amid the 2009 global economic downturn, the Turkish government, facing a budget shortfall, started implementing a "global budget" for drug expenses as a part of its medium-term plan.

The new belt-tightening policy set a ceiling for pharmaceutical purchases, which is TRY14.6 billion ($8.1 billion) for 2010, 10% less than the level of 2009. It set TRY15.56 billion and TRY16.67 billion for 2011 and 2012, respectively. To maintain the budget, Ankara has enforced two rounds of price reductions.

In December 2009, the government implemented a plan to slash prices for 4,000 drugs, including both branded and generic products. The new policy required prices for all drugs without available generic substitutions to be set at 66% of a reference price, resulting in a 12% average price reduction (Also see "Dusk And Dawn In Emerging Markets? Pharmas Find Growth Elsewhere Offset Turkish Price Cuts" - Scrip, 4 May, 2010.).

Last December, drug makers took another haircut after the Turkish Social Security Institution imposed an additional 9.5% price cut to its reference pricing system (Also see "Turkey Again Slashes Drug Prices; Manufacturers And Pharmacists Cry Foul" - Scrip, 11 Feb, 2011.).

Turkey's drug prices are benchmarked to the lowest price from a basket of five European countries: France, Italy, Portugal, Spain and Greece.

New Cut To Deepen Current Crisis, Warns AIFD

Facing the potential for another round of cuts, AIFD has gone on the offensive, warning that further cuts could deepen a crisis the industry is already facing in Turkey.

As a result of the previous cuts, drug prices in Turkey are cheaper than anywhere in Europe, 30% - 50% below other European countries, AIFD says.

The association's vice chairman listed several fallouts that could occur with a new round of cuts, including product delisting and even investment pullout.

"Such measures will deepen the already heavy impact of the previous price cuts, and may hinder the sustainability of drug supply and entry of new innovative medicines into the market," Guner said. "Some of the companies may consider taking some drugs off the market; some may consider making revisions and diminutions in business and investment plans."

Established in 2003, AIFD represents 37 research-based pharmaceutical companies operating in Turkey, 90% of which are multinationals. AIFD members include both Big Pharma and large biotechs, including Abbott Laboratories, GSK, Novartis AG, Pfizer Inc., Sanofi, Amgen Inc. and Roche AG.

AFID members, meanwhile, have already voiced grave concerns over the past price cuts. Sanofi, for example, noted that sales for Taxotere (docetaxel) were down 30% in the second quarter, and that Turkish cuts have "damaged the performance of the product" (Also see "Sanofi Shrugs Off Price Cuts, Acquisition Risks In Emerging Markets" - Scrip, 14 Sep, 2011.)

Novartis also has blamed the Turkish cuts for a slowdown in its emerging markets sales and says it has reallocated resources to other markets (Also see "Abbott, Eli Lilly, Novartis: Emerging Markets Earnings Round Up (Part 1)" - Scrip, 8 Feb, 2011.).

And Boehringer Ingelheim GmbH has said it would consider exiting Turkey altogether due to the cuts (Also see "Boehringer Threatens Turkish Exit Due To Price Cuts" - Scrip, 2 May, 2011.).

In addition to the negative impact to current products, new cuts could also deter foreign direct investment.

"Such an environment will further hinder the potential in attracting new pharma investments on manufacturing, R&D and technology transfer to Turkey," Guner claimed.

The vice chairman cited a recent AIFD industry survey showing 69.5 % of participants believed their investments in Turkey will decrease. And as high as 91.3 % said that they do not expect their companies to make new investments in production, R&D or administrative staff in Turkey in the near future.

Unpredictability Poses Greatest Challenge

Above all else, the AIFD executive says unpredictability in policymaking is the single most challenging factor for MNC drug makers operating in Turkey.

"Policies and regulations in the important areas like licensing, reimbursement and pricing keep changing," said Guner. When the government introduced the reference pricing system in 2004, the industry had hoped there would be some stability and predictability, he added.

The recent rounds of price cuts, however, have spoiled the optimistic atmosphere.

Not surprising, all top executives of AFID member companies participating in the recent survey complained about "not being able to foresee the near future," and "not being able to know which policies would change suddenly," Guner said.

And over 78% of survey respondents expressed frustration that industry views are not being valued or included in the policymaking process.

Guner said the industry needs long-term policies that are transparent and predictable. It also needs government support to ensure the setting of investment and growth targets.

Policy uncertainly may also be a factor helping to delay several rumored deals by MNCs.

GSK and Eli Lilly & Co., for instance, have both been linked recently to local generic makers. GSK is said to be among three bidders for Biofarma Pharmaceutical Industry Co. Inc. (Also see "GSK Reportedly Bidding For Turkish Biofarma, Local Manufacturing Key To Market Registration" - Scrip, 14 Apr, 2011.), while Lilly has been in partnership talks with Mustafa Nevzat Pharmaceuticals ( (Also see "Lilly Among MNCs Scouting In Turkey For Local Partners As GMP Inspection Backlog Continues" - Scrip, 12 Oct, 2011.)).

Despite the rumored talks, none of the deals have materialized.

Exchange Rate Deals Double Blow

Adding salt to the wounds, a drastic devaluation of the Turkish lira compared to both the U.S. dollar and euro has also burdened the industry. Guner said the recent depreciation has reduced prices for the Turkish pharma sector by an additional 25%.

Also, there is a Turkish law that requires drug price revision in the case of an exchange rate fluctuation surpassing a certain threshold, Guner noted, although the government has not yet acted upon the law.

Times, indeed, are tough. And any further cuts would "be without the agreement and consent of the industry," Guner said.

- Brian Yang ([email protected])

[Editor's note: Look for an in-depth interview with AIFD Vice Chairman Engin Guner in a future issue of PharmAsia News.]

[This article appears courtesy of PharmAsiaNews.com, Elsevier Business Intelligence's source for Asian biotech and pharmaceutical news. Register for a 30-day risk free trial - no credit card required.]