Corporate / M&A

Turkey: Pricing Issues in the Turkish Pharmaceutical Sector

The Turkish pharmaceutical market is large, with 300 different companies providing pharmaceutical products to a nation of 75 million people. The market exceeds USD nine billion in revenue, placing Turkey 6th in Europe and 16th in the world in terms of market size. This article explores new pricing rules and their consequences for the growing pharmaceutical market in Turkey.

Problems of pricing in the Turkish pharmaceutical sector

Despite the recent growth in the Turkish pharmaceutical market, the issue of pricing still poses a serious problem for the industry. Turkey uses a reference pricing system, in which the price of a pharmaceutical product is set at the lowest sale-to-warehouse price of (i) the five EU reference countries; (ii) the country where the product is manufactured; or (iii) the country from which the product is imported, provided the product has received market authorisation and is actually sold in these countries. Discounts are not considered. Since 2009, the Euro-Turkish Lira (“TRY“) exchange rate for purchases of pharmaceutical products has been fixed at 1.96 TRY/Euro which can cause significant problems as the actual exchange rate fluctuates. A change involving the pricing of pharmaceutical products was introduced in 2012 to address the problem, but unfortunately only reaffirmed the reference pricing system from 2004.

The pricing system led to numerous complaints from producers of pharmaceutical products, and ultimately led to problems in ensuring public access to some of the medicines.

Recent developments

A new decision in the Official Gazette 29412, On the Pricing of Medicines for Human Use, published on 10 July 2015, has revoked the controversial 2007 pricing decision and has introduced a reference price for pharmaceuticals.

What the new decision states

The new pricing decision’s most significant provision, Article 2(2), stipulates that the reference price is now 70 % of the previous year’s average EUR/TRY exchange rate.

The new pricing decision became effective immediately. As a transitional matter, under Provisional Article 1, the Pricing Commission was required to publish the average EUR/TRY exchange rate for the previous 90 days (rather than the previous year) by 21 July 2015, which then formed the basis of reference prices until January 2016.

Changes in the law

The Decree by the Council of Ministers on Pricing of Medicinal Products for Human Use (“Decree“), entered into effect on 10 July 2015, when it was published in Official Gazette No. 29412. The Decree introduced detailed procedures and principles for establishing, publicising, and changing the prices of medicinal products for human use in Turkey. A new Communiqué is expected to be issued in accordance with the new Decree. Until then, the provisions of the Communiqué on Pricing of Medicinal Products for Human Use issued under the now superseded Decree will continue to apply, provided they do not contradict the new Decree.

Procedures and principles introduced by the Decree include:

1. Annual determination of the EUR-TRY exchange rate

The Price Evaluation Commission is required to determine the operative EUR-TRY exchange rate for purposes of pricing medicinal products for human use. The determination must be made within the first five days of January each year (Article 2(2)). The rate will be set at 70% of the annual average Euro value, calculated based on the Central Bank of the Turkish Republic’s daily indicative exchange rate, announced in the previous year’s Official Gazette.

2. Monitoring reference prices

Companies are responsible for monitoring, following-up on, and informing the Ministry of Health about the relevant reference price (Article 2(1)). The Ministry of Health will not automatically investigate reference prices, although it has the discretion to do so.

3. Declaring changes to reference prices

Companies must declare changes to reference prices every six months (Article 5). Their obligations to declare any and all reductions in reference prices continue under the Decree.

4. Profit rates

The profit margin of storekeepers and pharmacists indicated under Article 6 of the Decree, will not be included in medical prices within the scope of alternative reimbursement models in accordance with Article 73 of Law of Social Security No. 5510. The Price Evaluation Commission can determine medical prices and/or profit rates without being limited to the Decree’s provisions.

5. Announcing price changes

Changes to price lists must be announced each Friday (or the previous workday, if Friday is a public holiday). The new prices will enter into force the following Tuesday. Voluntary reductions to the price list will become valid 60 days after the announcement date.

6. Transition period

The Price Evaluation Commission was required to publish the Euro value for purposes of the exchange rate to be used until 31 December 2015 within five working days of the Decree being published in the Gazette (Transitional Article 1). Fulfilling this requirement, the Price Evaluation Commission set the value of 1 Euro to be applied for this period at TRY 2.0787.

Implications for pharmaceutical companies

Pharmaceutical companies must revise their product prices in line with the new pricing rules.

Conclusion

While the long-running discussion on fixing the exchange rate appears to be resolved, the result is not favourable for pharmaceutical companies, which will continue to feel pressure from the pricing rules due to the relatively low 70 % coefficient.

Pharmaceutical companies need to come to terms with the new pricing rules and adjust their pricing accordingly.