In an effort to rebalance the pharmaceutical market and promote local production, Turkey implemented a localization policy in 2016. The policy requires all drugs feasible to be produced in Turkey to be manufactured domestically, aiming to reduce reliance on imported medications. While the policy has drawn attention and legal challenges from international entities like the EU, it has also fostered collaborations between local and multinational pharmaceutical companies. This article explores the implications of Turkey’s localization policy, its impact on the industry, and the potential opportunities and challenges it presents.

Over 80% of drugs consumed in Turkey are manufactured domestically, but the majority of these products are below-value generics. In 2018, the high-value originator market, monopolized by foreign companies, generated approximately US$3.5 billion in sales. In contrast, local companies in the generics market produced more than double the volume but accumulated only US$1.5 billion in sales. Multinational companies, with offshore production facilities and large product portfolios, have the advantage of adapting to the latest market trends more easily. They also have better cost control and can recoup expenses from higher-margin countries.

Turkey’s localization policy, launched in 2016, mandates that drugs feasible to be produced domestically must be manufactured within the country. Known as the “localization requirement,” it includes a ban on imported drugs and an implicit request for technology transfer. Failure to meet the localization requirement can result in drugs being excluded from the reimbursement scheme, effectively removing them from the market. Multinational companies are thus compelled to either invest in local manufacturing plants or outsource production to local manufacturers. This measure aims to rebalance the risks and responsibilities of production between local and foreign companies.

The EU lodged a formal complaint against Turkey at the World Trade Organization (WTO) in April 2019, accusing the localization policy of being inconsistent with the General Agreement on Tariffs and Trade (GATT) 1994. The EU argued that the policy treated imported drugs less favorably than domestically produced ones and failed to provide transparent terms and conditions. The United States joined the consultations as well. A panel was established with the involvement of Brazil, Canada, China, India, Indonesia, Japan, the Russian Federation, Switzerland, and Ukraine as third parties. The outcome of this dispute remains uncertain.

While the localization policy may seem to pit local companies against multinationals, it has indirectly brought the industry closer together through increased collaboration. Local manufacturers have become indispensable in helping multinationals localize their products, resulting in more partnerships and outsourcing arrangements. However, companies without manufacturing facilities have expressed concerns about the policy. Contract manufacturing organizations (CMOs) have emerged as winners, capitalizing on the increased demand for toll manufacturing. The policy also offers the opportunity for technology transfer and the development of local expertise.

The localization policy has had a broader impact on the pharmaceutical value chain, including local companies. If successful, the policy could lead to greater market consolidation and potential acquisitions of local companies by multinationals seeking to comply with the localization requirements. However, many uncertainties remain, such as whether the policy will bring the intended advantages and if any unintended consequences need to be addressed.

Turkey’s localization policy in the pharmaceutical industry aims to promote local production, reduce reliance on imported drugs, and foster collaboration between local and multinational companies. While facing legal challenges and concerns from international entities, the policy has the potential to rebalance the market and drive technological advancements. However, the success and long-term effects of the policy are yet to be determined. Turkey’s pharmaceutical industry continues to navigate the challenges and opportunities presented by the localization policy as it strives to achieve a sustainable and balanced market.