BMI View : EastPharma 's results mirror the overall decline in the value of the Turkish pharmaceutical market in 2012. The effects of price cuts enforced in the local drug market in Q311 have come to surface in the company's financial performance for 9M12. Whilst these results are disappointing, we remain positive on the outlook of the Turkish market despite the burdensome and complex regulatory load placed on drugmakers. As pharmaceutical firms such as EastPharma add high-value drugs to their portfolio, we expect growth in the pharmaceutical market to pick up in line with the improving macroeconomic picture from 2013.
EastPharma, a Turkish pharmaceutical firm, has just posted its 9M12 results. The company reported revenues of TRY401.7mn (US$171mn) year-to-date, a decline of 18.5% compared to 9M11. Similarly, EastPharma's market share dipped to 3.7% in 9M12, compared to a value of 4.3% in the same period last year.
The fall in revenues was attributed mainly to price cuts and a decreased sales volume of pharmaceutical products. Despite reporting a drop in revenues, the firm's EBITDA rose by 4.7% to TRY65.2mn (US$36.4mn) on the back of some extraordinary gains, including the reversal of a tax penalty and a gain on the purchase of a production plant. Additionally, the firm has managed to effectively cost-cut during a difficult period in the Turkish pharmaceutical market, with operating expenses dipping in 9M12.
Funding for pharmaceuticals in Turkey is dominated by the state, with the government providing 80-85% of total pharmaceutical expenditure in the country. Since 2009, Turkey's pharmaceutical industry has been beset by government-imposed price controls, with pricing decrees delivered at the end of every year in 2009-2011. There have also been changes to the methodology Turkey uses to establish drug prices and additional public discounts.
|Market Poised to Recover Strongly|
|Turkish Pharmaceutical Sales, 2007-2021f|
Despite this, we maintain our long-term view on the attractiveness of the Turkish pharmaceutical market, especially compared to stagnating markets in Western Europe. We believe pharmaceutical manufacturers entering Turkey will have to continue to be flexible in terms of pricing. We continue to expect there to be strong revenue-generating potential as the Turkish economy returns to headline growth from 2013.