Özge Atılgan Karakulak and Ceren Aral of Mehmet Gun & Partners -
Combining demographics, geographical location and economic growth with an investment of nearly $5bn in the Healthcare Transformation Program (HTP), Turkey is becoming an increasingly attractive market with substantial potential for investment in the healthcare technologies sector.
European medical devices companies have already been benefiting from this potential for some time. In addition to multinationals, more and more small and mid-size companies have been exporting a large variety of products – from consumables to high-tech professional use devices. Increasingly, companies have established local affiliates or are switching to direct sales, and new entries into the market through distributors have also been increasing.
The US presence in the market is mostly reflected by the large global companies with long-established local affiliates. They appear to "go with the flow" too, by furthering investments such as moving their global training facilities to the region. However, such a market, with no significant local production but a constant growth and increasing demand for high-quality medical technologies, almost awaits the expansion of US products. It is therefore no surprise that a delegation of 17 leading US medical technology and healthcare companies chosen from 35 applicants recently visited Turkey. The delegation was led by the US deputy minister of trade with the aim of exploring new partnership opportunities with a targeted business volume of $30bn.
Primed for growth
Turkey is one of the fastest growing and most populous countries in Europe; it also has one of the youngest populations. The TURKSTAT statistics indicate that the current population of 76m is expected to reach over 85m in 2025. “The Healthcare Industry Report” by the Investment Support and Promotion Agency of Turkey (ISPAT) reveals that the Turkish economy has grown with a GDP per capita increase of 25% from $3,439 in 2002 to $10,550 in 2012 with a 30% increase in the healthcare expenditure over the same period. This means that the young population is aging with the economic growth, resulting in improvement of healthcare services and increase in healthcare expenditure. The Organization for Economic Cooperation and Development (OECD) predicts that Turkey’s GDP per capita will reach $13,303 in 2017 with a growth rate leaving a large number of member countries in the region behind, implying sustainability of the investment-friendly environment.
Over the last decade, the healthcare system has undergone major improvements by the HTP, especially on the public health insurance scheme, infrastructure and R&D-based projects. All public health insurance schemes were unified under the Social Security Institution (SSI) and Universal Health Insurance was introduced. Today, the public health insurance covers practically almost all physical examinations, tests, treatment options (both outpatient and in-patient) conducted not only at public healthcare institutions but also private hospitals, with nearly 99% of the population covered. Accordingly, the SSI is the primary buyer of the products and services, which may come as both an advantage and a challenge.
This increased coverage has led to a high demand for top-quality systems and facilities. There has been significant increase in the number of hospitals, especially the private ones. According to the ISPAT report, today there are over 1,500 hospitals with a bed capacity of over 200,000, 37% of which are private. The Public Private Partnership (PPP) is on track, allowing the private sector to run public hospitals for a better quality service. Such high-quality private hospitals situated in such a favourable geographical location as Turkey has facilitated increasing health tourism with the number of foreign patients increasing by 38% between 2008 and 2012.
Already holding a relatively strong position in clinical trials, the establishment of Technology Development Zones has significantly contributed to the R&D operations, whereas the incentives and tax reductions attracted investment.
It is also known that the Turkish government has been working on an incentive programme, where an exceptional purchase system is aiming to be integrated into the public procurement scheme. Through this, the purchase of certain products and services will be guaranteed to the foreign investor provider for specific periods amounting to the calculated multiples of the value of the foreign investment made, commonly referred to as offset practice. Given this overview of the healthcare market, the import-dependent medical device sector presents parallel growth, reaching over $2bn and growing, with increasing demand for high-quality products and opportunities by government led incentive programmes.
However, one should pay attention to particularities in the Turkish market, especially in terms of local regulations. The regulations on medical devices, in-vitro diagnostics and active implantables are entirely in line with the relevant European Commission regulations. Under the Customs Union Agreement, the devices must bear a CE mark, obtained in the light of these regulations, to enter the market. The same does not apply for FDA approval and the US companies would be required to have their devices CE marked beforehand. Since the requirements are almost the same however, a US product fulfilling the FDA requirements would easily obtain a CE mark. The exported devices must then be registered to the online database of the Ministry of Health (TITUBB) by the distributor or the authorized representative of the exporter.
Also, the very recent Regulation on Sales, Advertisement and Promotion of Medical Devices entered into force on May 15 introduces extensive amendments to the promotion regime and interactions with Healthcare Professionals (HCPs) along with provisions on distribution channels and advertisements to public. Even though such levels of local regulation may at first glance come across as a challenge, it could be regarded as a competitive advantage for multinationals, US companies in particular, as they are already bound with high standards on interactions with HCPs due to extraterritorial application of local anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA).
It will be exciting to see how the process initiated with the US delegation’s visit will continue, and how US companies will take on these opportunities and challenges and to witness the value added to the market by the expansion of the US products.
Özge Atılgan Karakulak is a partner and Ceren Aral and associate at Turkish law firm Mehmet Gun & Partners
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