Pharmaceutical Sector's First-Half Performance

KPMG Turkey's Sectoral Outlook assessing the first-half performance of Turkey's pharmaceutical sector indicates that growth momentum in the sector has continued strongly since the beginning of the year. Real sales in the pharmaceutical market have been growing at a relatively moderate pace for some time, with growth largely driven by price increases. Data on turnover growth in the pharmacy sector points to strong performance in line with expectations. While localization and exports in the health sector support this process, reducing external dependence by beginning production of active pharmaceutical ingredients is of major importance in ensuring the sustainability of these trends. For this, the sector must increase its focus on R&D spending and fixed investments.

Key highlights from the report can be summarized as follows: Needle Pointing Upward

• Global pharmaceutical industry spending reached USD 1.2 trillion in 2018, and demand and investment trends are forecast to remain high over the next five-year period. However, government interventions in business processes and high R&D spending stand out as fundamental challenges for the sector. 134 Drugs Entered the Market • A total of 134 drugs entered the market in the first three months of the year, with 114 being generic drugs manufactured domestically.

Basic Pharmaceutical Products Manufacturing Growth Rate: 15.6%

• The manufacturing of basic pharmaceutical products and pharmacy-related materials within industrial production continues to benefit from increasing trends in domestic product usage. In this context, the sector's average growth rate of 7.3% in 2018 continued strongly in the first five months of 2019. The sector's first-quarter growth rate of 13.2% reached 15.6% on an average basis for the first five months. Turnover Increase of 31% • Turkey's pharmaceutical sector grew by 26.1% in value terms in 2018, reaching a size of TRY 30.94 billion. In unit terms, sales reached 2.30 billion units with a 3.6% increase. In the first quarter of 2019, compared to the same period of the previous year, growth was 27.5% in value terms and only 0.4% in unit terms. • The sector's domestic annual turnover increase signaled real strong growth of 24.1% in 2018 and 31.0% in the first five months of 2019.

Importance of Health Tourism Growing

• Health tourism's increasing strength emerges as a factor supporting the Turkish pharmaceutical sector.

Turkey's Potential High

• In the medium term, licensing process challenges in the sector, development of awareness in drug use, and public authority regulations limit sector dynamism. However, technological advances and high R&D spending create pressure on sector costs. Yet emerging markets like Turkey particularly continue to carry high potential due to demographic effects. Hakan Orhan Pharmaceutical and Health Sector Leader KPMG Turkey