REPUBLIC OF TURKEY PRIME MINISTRY

Investment Support and Promotion Agency of TurkeyISPAT

“Pharmaceutical Sector and PPP Projects in Turkey”

Derun ÜLGENDirettore di Progetto Senior

Top 20 Countries According to Pharmaceutical Sales in 2012

The Turkish pharmaceutical sector is the 6 th largest in Europe in terms of sales

Source: EIU

� Great progress has been made in the sector during the last decade and thanks to a series of reforms, thequality and efficiency of the public and private healthcare system have been increased.

� Turkey was the 6th largest pharmaceutical market in Europe and 16th largest in the world in 2012 withUSD 12.5 billion sales, which means a growth of nearly 10% between 2003 and 2012 and it is expectedto grow by 7%-10% each year

Healthcare and Pharmaceutical Spending Growth by Re gion, 2013 Forecasts

According to EIU forecasts, global healthcare and pharmaceutical spending is expected to increase in

2013 compared to the previous year by 2.4% and 4.0%, respectively, whereas in Turkey, forecasts

indicate higher growth rates than global ones. Within this context, the healthcare sector is expected to

grow by 5.8% and pharmaceutical sector by 8.9%, in 2013.

Global and Turkish pharmaceutical sector will grow

Turkey’s pharmaceutical sales grew 9.7% fromTurkey’s pharmaceutical sales grew 9.7% from

2003 to 2012. This is expected to increase of

8.8% from 2012 to 2017 surpassing USD 19

billion.

Exports of Pharmaceuticals Sector in Turkey

Pharmaceutical exports

�Turkey’s pharmaceutical exports increased 10% from 2007 to 2012, surpassing USD 720 million.

�For the export values, top ten countries had over 55% of the total export share. Germany is a

prominent partner of Turkey with 10% in 2012, followed by Iraq with 8%, South Korea, which is the

largest export market in Asia, for Turkey, with 7%.

�With the help of 2023 Vision Targets, Turkish pharma sector can deliver over USD 13 billion worth of

exports by 2023.

Acquirer Target DateDeal Value

USD MillionsStake

Citibank Venture Capital Ltd; Partners in Life Sciences (PiLS)

Biofarma Pharmaceuticals Co. Ltd. 2006 200 100%

White Swan Corporation B.V. Taymed Saglik Urunleri Ticaret Ltd Sti 2006 N/A 100%

Partners in Life Sciences (PiLS) Munir Sahin llac Sanayi ve Ticaret A.S. 2006 22 100%

International Pharma Ltd. Deva Holding AS 2006 50.2 18%

Actavis Group hf (formerlyPharmaco hf ) Fako Ilaclari As 2006 20.4 10%

Eastpharma Holding Saba Ilac Sanayii ve Ticaret A.S. 2007 10 96%

Zentiva NVEczacıbaşı-Zentiva Kim. Ur. San. ve Tic. A.S. Eczacıbaşı-Zentiva Sag. Urun. San. ve Tic. A.S.

2007 602 75%-75%

M&A market with USD 1.7 billion worth of transactio ns since 2006

Zentiva Sag. Urun. San. ve Tic. A.S.

Sandoz International GmbH Roche Holding AG (Gebze production plant) 2007 N/A 100%

Eczacıbaşı Ilaç Monrol Nükleer Ürünler 2008 43.1 50%

İş Girişim Sermayesi Dr. F. Frik Ilaç Sanayi 2008 13.4 17%

Partners in Life Sciences Betasan Pharmaceuticals 2008 N/A 100%

Recordati SpA Yeni Ilac 2008 60 100%

Ebewe Pharma EBV Limited 2008 N/A 100%

Zentiva NVEczacıbaşı-Zentiva Kim. Ur. San. ve Tic. A.S. Eczacıbaşı-Zentiva Sag. Urun. San. ve Tic. A.S.

2009 N/A 25%-25%

Alliance Boots Hedef Alliance Holding 2010 N/A 10%

Polpharma Cenovapharma 2011 N/A 77%

NBK Dem Ilaç 2012 N/A N/A

Amgen Mustafa Nevzat Ilaç 2012 669 96%

Top 10 Pharmaceutical Manufacturing Companies in Tu rkey

# Company Market Share (2012)

1 Abdi Ibrahim 7.5%

2 Novartis 7.0%

3 Sanofi 5.8%

4 Bilim 4.9%

5 Pfizer 4.3%

6 Bayer 4.3%

7 Eastpharma 3.8%

8 Glaxo 3.7%

Industrial employment includesapprox.25.000 people

8 Glaxo 3.7%

9 Roche 3.4%

10 AstraZeneca 3.0%

Top Ten Total 47.6%

� Turkey has the necessary knowledge base, skilled workforce, infrastructure and geostrategic location toattract global pharmaceutical R&D and could become a global player in the pharma industry.

� Strong production facility infrastructure; 76% of drugs consumed in Turkey on a box basis and 49% on avalue basis are locally produced.

� Under current budget framework, Turkey’s local pharma production will reach 23.3 billion USD by2023 through the production of innovative and technologically advanced products (as compared to local

production of USD 5 billion USD in 2011).

Foreign companies play an important role in manufac turing phase

Multinationals with manufacturing facilities thatoperate in Turkey include Sanofi, Baxter, Bayer ,GSK, Novartis , Pfizer and Roche , with the mostrecent foreign entrant on the market beingrecent foreign entrant on the market beingEastPharma . Leading multinationals such asPfizer, Novartis, Bayer and Roche commandmarket shares of 4-6% each. Baxter runs a 50:50JV with Eczacıbaşı.

International companies are represented by thePharmaceutical Manufacturers Association ofTurkey (IEIS)has 60 members, which also includesdomestic firms.

� Turkish Drug and Medical Device Institution, a part of the MoH, is incharge of the regulation and control of pharmaceutical prices.

� The data protection liability generated by TRIPS entered Turkey’sregulations in March of 1995. In this context all of the confidentialityof information submitted for the purpose of obtaining a license is

Regulation

of information submitted for the purpose of obtaining a license isprotected. With this development, laws that are related to dataprotection in Turkey got closer to standards in Europe.

Clinical research

• Turkish Drug and Medical Device Institution is the regulatory authority in drug discovery and R&Dand monitors clinical research and R&D activities in Turkey. The institution has prepared alegislation related on Clinical Research in August 2011, which is compatible with European Uniondirectives.

• Turkey is ranked as the 35th country in number of clinical research conducted in the world and 19th

in Europe. Turkey conducted over 1,200 clinical researches in 2013 and took a share of 0.6% intotal clinical research conducted in the world.

• Companies who want to conduct research in following areas must take permission from Ministryof Health:

• Pharmaceuticals, medical products, herbal medical products that will be tested on humansubjects; observational pharmaceutical studies; bioavailability and bioequivalence studies;observational medical device studies and medical device clinical research; stem celltransplantation research; organ and tissue transplantation etc

• One of the goals of the government is to increase R&D spending in the sector to 3% ogGDP, thus, in turn it aims to increase the total number of clinical research conducted.

Technology Development Zones also contribute significantly to research and development of manufacturing industry

One TDZ UnderconstructionMore than one TDZ

�Entrepreneurs are exempt from incometax until 2023 over income made fromR&D operations and software. Taxesover wages of R&D personnel areexempt until 2023.

� 50% of the social security premiumsupport for 5 years for R&D personnelwill be supported under the law no. 5746named R&D Operations Support.

• TDZs are organized research centers where universities, research institutions and industrial foundations work

together for innovation and technology transfer; increasing product quality and standards; product development;

commercializing know-how; supporting technological investments and entrepreneurships.

• Every year, 4 new TDZs are opened in Turkey and the goals for 2023 are 5.500 companies, 65.000 employment,

and 10 billion dollars of exports.

• 55% of the firms in TDZs are engaged in Software and Informatics business. Other areas of focus are electronics

and defense industries.

• Number of projects reached 5,717 in April 2013 and total export reached USD 893 million at the end of 2012.

• A total of 322 patents were applied by the firms in TDZs.

• Employment in the TDZs consists of 15,960 R&D and 3,536 support personnel, with a total of 19,496.

Turkish Investment Incentives Program me

Support Measures General Inv. Regional Inv.Large Scale

Inv.Strategic Inv.

Vat Exception x x x x

Customs Duty Exemption x x x x

Tax Deduction - x x x

Land Allocation - x x x

Interest Support - x - x

Vat Refund - - - x

Employer's Social Security

Premium Support- x x x

Only For Region 6

� The investment incentive program of 2012 comprises 4different schemes: general, regional, large scale andstrategic. Moreover, specific priority investment subjectsare supported by measures of Region 5 even they aremade in Regions 1, 2, 3 and 4.

� All investment types, except the ones that are specificallyexcluded from investment incentives program, will besupported by General Investment Incentives Program. Inthis scope, the minimum fixed investment amount is TL 1million in Region 1 and 2 and TL 500 thousand in Regions3, 4, 5 and 6.

Income Tax Withholding Support x x x x

Employee’s Social Security

Premium Support- x x x

REGIONAL INVESTMENTS INCENTIVE SCHEME MEASURES

Region OIZ 1 2 3 4 5 6

Tax Reduction (%)

Out of OIZ 15 20 25 30 40 50

Within OIZ 20 25 30 40 50 55

Employer's Social

Security Premium

Support Period (years)

Out of OIZ 2 3 5 6 7 10

Within OIZ 3 5 6 7 10 12

Pharmaceuticals and medical equipment are incentivi zed

� Investments with a minimum amount of 50 million TL are considered as Large ScaleInvestments.

�Strategic investment incentives are given to the production of intermediate and final products withhigh import dependence with a view to reduce current account deficit. The criteria to gain thissupport would be: to be made for production of intermediate and final goods with high importdependence of which more than 50% of these goods are supplied by imports, to have a minimuminvestment amount of TL 50 million , to create minimum 40% value added and to have an importinvestment amount of TL 50 million , to create minimum 40% value added and to have an importamount of at least USD 50 million for goods to be produced in the last one year period (notapplicable to goods with no domestic production).

�More specifically, investments in the fields of biotechnological and oncological drugs, and bloodproducts are considered as strategic investments benefiting from the incentives implemented inthe fifth region provided that the fixed investment amount is above TL 20 million.

Strategic Plans

�The Ministry of Health in its Strategic Plan for period of 2013-2017 is aiming to improve,monitor and evaluate quality standards for pharmaceuticals, biological products and medicaldevices; to develop, monitor and evaluate standards for medical devices used for treatmentpurposes; to increase the number of inspections for GMPs; to improve the evaluation ofapplications and licensing processes and to ensure the rational use of drugs and medicaldevices.

�The Ministry of Science, Industry and Technology has identified strategic goals on its StrategyPaper which are the improvement of regulations to meet the demands of public health andimprove investments; the investment on qualified human resource; the improvement of thecooperation among public sector, private sector and universities; effective planning of R&Doperations to produce high value added products.

Source: Ministry of Health Strategic Plan 2013-2017

2023 Goals

Selected Key Performance Indicators from Action Pla n

Key Performance Indicators Current Status Vision 2023

Innovation Capacity 71. Top 20

The quality of scientific research centers 89. Top 30

Retaining scientists and engineers 35. Top 20

Global Innovation 74. Top 30

Number of new local molecules 0 At least 1

Pharmaceutical R&D expenditures/GDP (2011)* 0.02% 0.1%Pharmaceutical R&D expenditures/GDP (2011)* 0.02% 0.1%

Pharmaceutical R&D expenditures/total R&D expenditures (2011)* 0.04% 3.6%

Number of clinical trials conducted throughout a year (2013) 1,267 ≈3600

Pharmaceutical exports as a percentage of pharmaceutical imports (2010)

10% 107%

Number of multinational pharmaceutical companies, that have established regional management centers in Turkey (2011)

3 20

Global Competitiveness 59 Top 25

Ease of doing business (2013) 71 Top 35

Duration of GMP certification (2011) 350 days ‹210 days

Source: AIFD, Vision 2023 Report; Ministry of Scince, Industry and Technology, Turkstat, Deloitte Analysis*: Includes manufacture of basic pharmaceutical products and pharmaceutical preparations

Note: Status is out of 142 counties

HEALTH CAMPUSES

Turkish PPP Program

• Turkey has undertaken an ambitious Healthcare PPPProgram through which a total of 35 health campusesand city hospitals are intended to be built using the build-lease-transfer model.

• Each campus will house 2,000 to 4,000 beds dividedamong general and specialized hospitals andlaboratories

• The health campuses and city hospitals will add between40,000 - 50,000 beds to Turkey’s existing healthcare

Added Bed Capacity50,000

Planned PPP Projects

Lease Payments per year

TL 3.2-4 billion

Average Lease Period25 Years

Current PPP Projects40,000 - 50,000 beds to Turkey’s existing healthcareinfrastructure.

• It is estimated that the lease payments for the plannedhealth campuses and city hospitals will be between TL80,000 and 85,000 per year per bed, amounting to a total ofTL 3.2 to 4 billion per year.

• Assuming the MoH will lease the facilities for 25 years, thetotal amount of lease payments for healthcare campusesand city hospitals will reach TL 80 to 100 billion.

Planned PPP Projects35

Total Lease PaymentsTL 80 – 100 billion

Current PPP Projects20

• International tenders are being opened for thecontracting of each of these hospitals to consortiums(composed of construction companies, architecturaldesigners, operators, and medical technologiescompanies). The winning consortium of each projectwill finance the construction and will operate thecampus for 25 years against guaranteed annual leasepayments to be made by the MoH.

Turkish PPP Program

• 2003-2013 Health Transformation Program

• Vision 2023 • MoH 2013-2017

Strategic Plan• 10th National

Development Plan

• Supreme Planning Board

• MoH, Department of Public Private Partnership

• Under Secretariat of the Treasury

Healthcare PPP Project, build-lease-transfer

Policy Framework Legal Framework Institutional Framework

• The Supreme Planning Board is involved ina limited number of decisions withfundamental importance, while the MoHassumes bulk of the work to be done for theinitiation and realization of Healthcare PPPProjects. The MoH selects relevant PPPprojects, prepares feasibility reports andtender documentation. The UnderSecretariat of the Treasury , in most cases,procures the land for the PPP projectprovided that it is determined the land will betreasury-owned land.

• Law no.6428 published in the Official Gazetteon 9 March 2013 decreases the burden andrisk undertaken by companies involved inPPP projects. It brings legal certainty andintroduces a mechanism through which leasepayments can be adjusted according tochanges in foreign exchange rate.

Healthcare PPPs in Turkey use the Build-Lease-Trans fer (BLT) Model

Under the BLT model, the project company contracts or renews healthcare facilities, and subsequently leases it to thegovernment for a set amount of time. During the contract period, in addition to getting regular lease payments fromthe government, the project company also has the right to develop and operate non-healthcare facilities. If thecompany is renewing the facility it receives the right to provide non-healthcare services and a service fee in return forits investment. If new facilities are built the following procedure is followed:

Tender Phase

Projects are awarded through one of the following procedures:

- Open Bid Procedure (preferred)- Open Bid Procedure among bidders selected through a pre-qualification process- Negotiated procedure (only allowed in a limited set of circumstances)

- The project company secures the financing required for the completion of the project.- If the land on which the facility will be built is treasury-owned, MoH arranges for the land to

Build

Lease

Transfer

- If the land on which the facility will be built is treasury-owned, MoH arranges for the land tobe used by the project company, free of charge, for the project period.

- During the investment period, the transactions between MoH and the company are exemptfrom stamp tax.

- Once the health facility is built according to the contracted standard, MoH will lease thefacility for a maximum period of 30 years.

- MoH will pay the project company a yearly lease adjusted annually on the basis of theTurkish Producer Price Index and the Turkish Consumer Price Index.

- During this period, the project company also has the right to operate non-healthcarefacilities.

- At the end of the contract term, the project company returns the healthcare facilities built tothe MoH in good working condition and without any encumbrances.

- If the land on which the facility is developed is not treasury-owned, the MoH takesnecessary steps to adequately compensate related parties.

Projects in the Pipeline…

Istanbul Bakırköy Integrated Health Campus 1,043 beds

Istanbul Üsküdar Public Hospital 425 beds

Eskişehir City Hospital 1,060 beds

Kocaeli Integrated Health Campus 1,180 beds

TPHA + TPMDA Campus N/A

Bursa Integrated Health Campus 1,355 beds

Isparta City Hospital 755 beds

Izmir Bayraklı Integrated Health Campus 2,000 beds

Adana Integrated Health Campus 1,539 beds

Elazığ Integrated Health Campus 1,038 beds

Pre qualification tender

announcement phase

Pre qualification phase

Bid phase

Final Bid phase

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Elazığ Integrated Health Campus 1,038 beds

Gaziantep Integrated Health Campus 1,867 beds

Konya Karatay Integrated Health Campus 838 beds

Manisa Education and Research Hospital 558 beds

Mersin Integrated Health Campus 1,253 beds

PTR, Psychiatry and High Security Forensic Psychiatry Hospitals

2,400 beds

Yozgat Education and Research Hospital 475 beds

Istanbul İkitelli Integrated Health Campus 2,682 beds

Ankara Bilkent Integrated Health Campus 3,660 beds

Ankara Etlik Integrated Health Campus 3,566 beds

Kayseri Integrated Health Campus 1,583 beds

Contract phase

Construction phase

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