VZCZCXRO9560
PP RUEHDA
DE RUEHAK #1740/01 3411553
ZNR UUUUU ZZH
P 071553Z DEC 09
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 1405
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL PRIORITY 6609
RUEHDA/AMCONSUL ADANA PRIORITY 4312

UNCLAS SECTION 01 OF 02 ANKARA 001740 
 
DEPT FOR EUR/SE, EEB/TPP/BTA 
DEPT PLEASE PASS USTR FOR MMOWREY 
USDOC FOR ITA/MAC/CRUSNAK AND KNAJDI 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV ECON ETRD EFIN TU
SUBJECT: TURKEY: COMPROMISE DEAL REACHED ON PHARMA, BUT 
INDUSTRY, PHARMACISTS STILL ANGRY 
 
REF: A) ANKARA 1352, B) ANKARA 1503, C) ANKARA 1516, D) ANKARA 
1693 
 
This cable is sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (SBU) Summary.  The long negotiations between the GOT and 
the pharmaceutical industry on how to close the health care 
budget gap ended in a "compromise" deal on December 2.  Under 
the terms of the deal, the GOT moved only marginally from its 
initial negotiating stance, and reserved the right to modify 
the terms of the deal if economic conditions change.  The GOT 
also moved ahead with implementation immediately despite 
having agreed to a five business day delay.  Industry analyst 
appraisals of the deal have ranged from "ruinous" to 
"disastrous," but all agreed that even the minor improvements 
were better than no deal at all.  U.S. firms continue to 
reevaluate their local presence, and are also conducting drug- 
by-drug analysis of profitability - the likely result is that 
many drugs will be removed from the market. With their demands 
still unsatisfied, pharmacists throughout Turkey conducted a 
general strike on December 4 to protest the effects of the 
pricing cuts on their bottom line.  Additional actions may 
come out of the annual pharmacists' union meeting, 
coincidentally scheduled for December 11.  Analysts predict 
that nearly a third of Turkey's 23,000 pharmacies may close 
their doors.  End Summary. 
 
Negotiations Successful, but a Pyrrhic Victory 
--------------------------------------------- - 
 
¶2. (U) After months of negotiation (see reftels), on the 
evening of December 2 the GOT and pharmaceutical industry 
finally came to a "compromise" deal on closing the growing 
health care budget gap. Looking at the original plan set out 
by the GOT in its September 18 decree, the industry managed to 
extract very little in the way of concessions.  Under the 
compromise deal, the following pricing structure will be put 
in place: 
 
-- The mandatory discount for original drugs with no generic 
version (or for which no approved generic version is actually 
on the market) will be set at 12% vice 13% in the original 
proposal, bringing the total mandatory discount to 23%; 
-- Both original drugs with a generic version on the market 
and generic drugs will be priced at 66% of the lowest 
reference price among five European countries, vice 60% in the 
original proposal; 
-- The new 12% mandatory discount for original drugs will not 
be applied during the first year a drug is on the market; 
-- The GOT will hold quarterly reviews of health care 
expenditures and if expenses are higher than anticipated will 
increase the mandatory discounts appropriately. (Note: In 
theory, if spending is less than anticipated, the discount 
will be reduced but this is unlikely to happen. End note.); 
and, 
-- Products older than 20 years that are currently sold above 
the reference price will be sold at 100% of the reference 
price as of January 1, 2010 (a quirk of the law excluded these 
products from the reference price system). 
 
This new plan is expected to save the GOT approximately TL 3.1 
billion (USD 2.06 billion) per year.  Industry analysts 
estimated that 70-75% of this burden will fall on foreign 
firms, and that U.S. firms' share will be roughly USD 650-700 
million per year. 
 
¶3. (SBU) All industry contacts agree that the plan is a 
disaster both in its actual terms and in the precedent it sets 
for other countries, but felt that it was the best deal that 
could be achieved.  Several contacts also noted that the GOT 
had committed to three years of pricing predictability, which 
they felt was a positive development.  (Comment: As the GOT 
built in a mechanism to increase discounts whenever savings 
are less than anticipated, this commitment seems a bit weak. 
End comment).  Murat Asik, Healthcare Policy and Market Access 
Manager at Merck, Sharp & Dohme, noted that as part of the 
deal, the Social Security Administration agreed to allow five 
business days before implementation so that firms could get 
approval from their home offices.  In violation of this 
agreement, the new prices were implemented immediately on 
December 4, which Asik observed did not inspire much 
confidence in the GOT's reliability.  In addition to planned 
layoffs described in reftels, all pharmaceutical firms we have 
 
ANKARA 00001740  002 OF 002 
 
 
talked to indicated that they are doing a drug-by-drug 
profitability analysis in light of the new discounts, and that 
many drugs may be pulled from the market as a result. 
 
Pharmacists Strike Back 
----------------------- 
 
¶4. (U) Angered by apparent GOT indifference to the effect of 
the decree on their bottom line, pharmacists throughout Turkey 
engaged in a general strike on December 4, shutting down all 
of Turkey's 23,000 pharmacies except for a handful of duty 
pharmacies, where lines were long and service was slow.  Many 
pharmacists also participated in a march in downtown Istanbul 
to highlight the issue. 
 
¶5. (U) The pharmacists' problems are twofold.  First, they 
purchased many of their drug stocks at the prevailing price 
several months ago, but are now required to sell them at a 
greatly reduced price.  The pharmaceutical companies have 
agreed to compensate them for this disparity, but only for 
drugs purchased within the last 45 days.  So many pharmacies 
will take a significant loss on older stocks.  Other 
pharmacies simply refused to take on any new stock while the 
issue was being decided, with the result that they are now 
operating with only minimal supplies of drugs. 
 
¶6. (U) The longer-term problem facing pharmacists is that 
their profit margin is set by law at a certain percentage of 
the drug price.  While the percentage will not change, the 
actual profit will fall proportionally with any discount.  So 
with a hypothetical profit margin of 20%, a drug that 
previously sold for 10 lira and generated 2 lira in profit 
would now be sold for 6.6 lira and generate only 1.3 lira in 
profit.  In practice, the formula for determining prices is 
complicated and opaque (partly because the GOT uses its own 
fictional exchange rate in determining reference prices), with 
the result that many discounts will actually exceed 34% of the 
genuine price, further affecting retail profits. 
 
¶7. (SBU) Based on data from the Turkish Pharmacists' Union, 
the fall in pharmaceutical prices will lead to a contraction 
of 30% in profits and will cause the annual revenues of over 
12,000 pharmacies to drop below TL 40,000 ($27,000) and of 
those, 7,000 are expected to close their doors.  Murat 
Salihoglu, Secretary General of the Pharmaceutical Industry 
Employers' Union (IEIS), noted that the closures may not be an 
entirely bad thing, as there are probably already too many 
pharmacies in Turkey and 500 new ones are added to the market 
each year.  This trend has been sustained in part because 
profit margins were relatively generous in recent years, 
making it attractive to open new but unnecessary stores.  Some 
correction may be beneficial, he argued, but the dislocation 
caused by mass closures would severely impact the availability 
of drugs at a time when the GOT is trying to expand access to 
health care services. 
 
¶8. (U) While the pharmacists succeeded in attracting headlines 
for their strike, the GOT seems less impressed.  Labor 
Minister Dincer told the press that the pharmacists would not 
lose a penny from the price changes and, while he acknowledged 
that their profit margins will decrease, said that they had 
benefited from years of artificially high prices and now would 
have to live with more realistic margins.  There has been no 
indication that the GOT plans to back down from its current 
stance.  In response, the pharmacists have threatened to 
escalate the situation, and will be discussing possible 
strategies later this week at their December 11 annual 
conference (which had been scheduled before the pricing 
decrees).  These could include further stoppages or 
restrictions on which drugs they will agree to sell. 
 
¶9. (SBU) Comment: While the GOT seems happy with the 
compromise deal, no one else is.  And since the GOT has 
already violated the terms of the agreement with regard to the 
implementation date, there is little reason for the 
pharmaceutical industry to trust assurances that there will 
not be further arbitrary adjustments to come.  Investment in 
pharmaceutical production in Turkey and accessibility to the 
latest innovative drugs is likely to suffer as a result, with 
companies leery of putting any more money at risk in an 
unpredictable environment.  End comment.