REPUBLIC OF TURKEY PRIME MINISTRY

1. REPUBLIC OF TURKEY PRIME MINISTRY Investment Support and Promotion Agency of Turkey ISPAT “Pharmaceutical Sector and PPP Projects in Turkey” Derun ÜLGEN Direttore di Progetto Senior

2. The Turkish pharmaceutical sector is the 6th largest in Europe in terms of sales Top 20 Countries According to Pharmaceutical Sales in 2012 • Source: EIU • Great progress has been madein the sector during the last decade andthanks to a series of reforms, the quality 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 with USD 12.5 billion sales, which means a growth of nearly 10% between 2003 and 2012 and it is expected to grow by 7%-10% each year

3. Global and Turkish pharmaceutical sector will grow 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. Healthcare and Pharmaceutical Spending Growth by Region, 2013 Forecasts Turkey’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.

4. Pharmaceutical exports Exports of Pharmaceuticals Sector in Turkey • Turkey’s pharmaceutical exportsincreased10% 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.

5. M&A market with USD 1.7 billion worth of transactions since 2006

6. Top 10 Pharmaceutical Manufacturing Companies in Turkey Industrial employment includes approx.25.000 people • Turkey has the necessary knowledge base, skilled workforce, infrastructure and geostrategic location to attract 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 a value basis are locally produced. • Under current budget framework, Turkey’s local pharma production will reach 23.3 billion USD by • 2023 through the production of innovative and technologically advanced products (as compared to local production of USD 5 billion USD in 2011).

7. Foreign companies play an important role in manufacturing phase Multinationals with manufacturing facilities that operate in Turkey include Sanofi,Baxter, Bayer, GSK, Novartis, Pfizer andRoche, with the most recent foreign entrant on the market being EastPharma. Leading multinationals suchas Pfizer, Novartis, Bayer and Roche command market shares of 4-6% each. Baxter runs a 50:50 JV with Eczacıbaşı. International companies are represented by the Pharmaceutical Manufacturers Association of Turkey (IEIS)has 60 members,which also includes domestic firms.

8. Regulation • Turkish Drug and Medical Device Institution, a part of the MoH, is in charge of the regulation and control of pharmaceutical prices. • The data protection liability generated by TRIPS entered Turkey’s regulations in March of 1995. In this context all of the confidentiality of information submitted for the purpose of obtaining a license is protected. With this development, laws that are related to data protection in Turkey got closer to standards in Europe.

9. Clinical research • Turkish Drug and Medical Device Institution is the regulatory authority in drug discovery and R&D and monitors clinical research and R&D activities in Turkey. The institution has prepared a legislation related on Clinical Research in August 2011, which is compatible with European Union directives. • 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% in total clinical research conducted in the world. • Companies who want to conduct research in following areas must take permission from Ministry of Health: • Pharmaceuticals, medical products, herbal medical products that will be tested on human subjects; observational pharmaceutical studies; bioavailability and bioequivalence studies; observational medical device studies and medical device clinical research; stem cell transplantation research; organ and tissue transplantation etc • One of the goals of the government is to increase R&D spending in the sector to 3% og GDP, thus, in turn it aims to increase the total number of clinical research conducted.

10. Technology Development Zones also contribute significantly to research and development of manufacturing industry • Entrepreneurs are exempt from income tax until 2023 over income made from R&D operations and software. Taxes over wages of R&D personnel are exempt until 2023. • 50% of the social security premium support for 5 years for R&D personnel will be supported under the law no. 5746 named R&D Operations Support. Underconstruction One TDZ More than one TDZ • 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.

11. Turkish Investment Incentives Programme • The investment incentive program of 2012 comprises 4 different schemes: general, regional, large scale and strategic. Moreover, specific priority investment subjects are supported by measures of Region 5 even they are made in Regions 1, 2, 3 and 4. • All investment types, except the ones that are specifically excluded from investment incentives program, will be supported by General Investment Incentives Program. In this scope, the minimum fixed investment amount is TL 1 million in Region 1 and 2 and TL 500 thousand in Regions 3, 4, 5 and 6.

12. Pharmaceuticals and medical equipment are incentivized • Investments with a minimum amount of 50 million TL are considered as Large Scale Investments. • Strategic investment incentives are given to the production of intermediate and final products with high import dependence with a view to reduce current account deficit. The criteria to gain this support would be: to be made for production of intermediate and final goods with high import dependence of which more than 50% of these goods are supplied by imports, to have a minimum investment amount of TL 50 million, to create minimum 40% value added andto have an import amount of at least USD 50 million for goods to be produced in the last one year period (not applicable to goods with no domestic production). • More specifically, investments in the fields of biotechnological and oncological drugs, and blood products are considered as strategic investments benefiting from the incentives implemented in the fifth region provided that the fixed investment amount is above TL 20 million.

13. 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 medical devices; to develop, monitor and evaluate standards for medical devices used for treatment purposes; to increase the number of inspections for GMPs; to improve the evaluation of applications and licensing processes and to ensure the rational use of drugs and medical devices. • 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 and improve investments; the investment on qualified human resource; the improvement of the cooperation among public sector, private sector and universities; effective planning of R&D operations to produce high value added products. Source: Ministry of Health Strategic Plan 2013-2017

14. 2023 Goals Selected Key Performance Indicators from Action Plan Source: AIFD, Vision 2023 Report; Ministry of Scince, Industry and Technology, Turkstat, Deloitte Analysis *: Includes manufacture of basicpharmaceutical products and pharmaceuticalpreparations Note: Status is out of 142 counties

15. HEALTH CAMPUSES

16. Turkish PPP Program Added Bed Capacity 50,000 • Turkey has undertaken an ambitious Healthcare PPP Program through which a total of 35 health campuses and city hospitalsare intended to be built using the build-lease-transfer model. • Each campus will house 2,000 to 4,000 beds divided among general and specialized hospitals and laboratories • The health campuses and city hospitals will add between 40,000 - 50,000 beds to Turkey’s existing healthcare infrastructure. • It is estimated that the lease payments for the planned health campuses and city hospitals will be between TL 80,000 and 85,000 per year per bed, amounting to a total of TL 3.2 to 4 billion per year. • Assuming the MoH will lease the facilities for 25 years, the total amount of lease payments for healthcare campuses and city hospitals will reach TL 80 to 100 billion. Average Lease Period 25 Years Lease Payments per year TL 3.2-4 billion Planned PPP Projects 35 Current PPP Projects 20 Total Lease Payments TL 80 – 100 billion • International tenders are being opened for the contracting of each of these hospitals to consortiums (composed of construction companies, architectural designers, operators, and medical technologies companies). The winning consortium of each project will finance the construction and will operate the campus for 25 years against guaranteed annual lease payments to be made by the MoH.

17. Turkish PPP Program Institutional Framework Policy Framework Legal Framework • 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 • Law no.6428 published in the Official Gazette on 9 March 2013 decreases the burden and risk undertaken by companies involved in PPP projects. It brings legal certainty and introduces a mechanism through which lease payments can be adjusted according to changes in foreign exchange rate. • The Supreme Planning Board is involved in a limited number of decisions with fundamental importance, while the MoH assumes bulk of the work to be done for the initiation and realization of Healthcare PPP Projects. The MoH selects relevant PPP projects, prepares feasibility reports and tender documentation. The Under Secretariat of the Treasury, in most cases, procures the land for the PPP project provided that it is determined the land will be treasury-owned land.

18. Healthcare PPPs in Turkey use the Build-Lease-Transfer (BLT) Model Under the BLT model, the project company contracts or renews healthcare facilities, and subsequently leases it to the government for a set amount of time. During the contract period, in addition to getting regular lease payments from the government, the project company also has the right to develop and operate non-healthcare facilities. If the company is renewing the facility it receives the right to provide non-healthcare services and a service fee in return for its 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 be used by the project company, free of charge, for the project period. • During the investment period, the transactions between MoH and the company are exempt from stamp tax. Build • Once the health facility is built according to the contracted standard, MoH will lease the facility for a maximum period of 30 years. • MoH will pay the project company a yearly lease adjusted annually on the basis of the Turkish Producer Price Index and the Turkish Consumer Price Index. • During this period, the project company also has the right to operate non-healthcare facilities. Lease Transfer • At the end of the contract term, the project company returns the healthcare facilities built to the MoH in good working condition and without any encumbrances. • If the land on which the facility is developed is not treasury-owned, the MoH takes necessary steps to adequately compensate related parties.

19. Projects in the Pipeline… PPP Projects in Healthcare as of December 2013 Pre qualification tender announcement phase Pre qualification phase Bid phase Final Bid phase Contract phase Construction phase

20. THANK YOU