Image courtesy of Atabay

Pharma and biopharma are much more distant relatives than their shared prefix may suggest. Biologics or biosimilars, which are larger proteins, peptides, nucleic acids or cells, pose different challenges in the development, production, commercialization and scale-up. Due to their larger weight, methods of preparation, route of administration, shelf-life, dosing, reactivity and other pharmacology considerations, pharma and biopharma are estranged in terms of the stages of drug discovery and development especially as far as cycle time, costs and risks or likelihood of success are concerned. Unlike chemical molecules with defined structures, large molecules have unique structures that cannot be replicated with exactitude, thus consistency is challenging for manufacturers who need to monitor the process more closely.

Based on these differences, biopharma is treated separately to classical pharma and it requires a different expertise. For these reasons, the biopharma segment is, by broad considerations, new to Turkey. The lack of industrial know-how in terms of bio-synthesis and successfully completing compatibility studies will be a key issue affecting Turkish biopharma. Pharmaceutical companies entering this field need to train or attract new personnel with the adequate knowledge to work on an industrial scale, but this has not proven easy: “It is very difficult to find people with extensive knowledge and expertise in biotechnology in Turkey. The main reason is that there are only a few companies in this area which are actively producing biotech products,” said Hakan Koçak, CEO of Koçak Pharma.

Even though universities are training students in the science of the latest generations of treatments, they can only prepare students to a certain limit. “While educational institutions contribute to basic scientific research, they do not provide industrial experience to students and their training does not fulfill the industry’s needs,” said Dr. Serdar Alpan, managing director of Turgut İlaç.

The initial governmental funds to incentivize biotech have helped to construct the hardware of the industry buying machinery, setting up the labs and igniting business in that space. However, the software, including the R&D component, technical expertise and the capabilities of employees are even more important to address.

Over half of the students working in pharma are educated to degree-level, by nature of the highly knowledge-intensive field. The government set up 32 Biotech and Research Parks in the 1990s to create platforms for universities, research institutes and the industry itself to exchange technology. New educational courses are more tailored to the latest developments and the needs of the sector. At private university Acibadem a new course in microbiology was started three years ago, the first cohort including 71 students. With money from both Turkish government institution Tübitak, as well as funds from the European Council, the tuition fees, normally reaching up to US$10,000, were scraped for most students: “We wanted to make sure we select the best students and expose them not only to traditional classes, but also experience in empirical research projects,” said Professor Tanıl Kocagöz, who is head of the Medical Microbiology and Biotechnology departments.

However, the fabric of a solid knowledge base is sewed from both theory and practice, and it involves academia as much as it involves industry. Besides funding pharma companies, grants offered to the industrial players were matched by grants to universities to develop their competence in this field. Istanbul Technical University (ITU), one of the oldest universities in Turkey, established a “Genomic Lab” with funds from the MoH to work on the next generation of sequencing for the development of personalized therapies. Scientists at ITU conduct research with breast and colon cancer patients. In 2010, the government also made a state call for the establishment of research centres. Sunum, which stands for Nanotechnology Research and Application Centre, received a US$35 million investment from the Ministry of Development. Over time, Sunum also created its own financing streams through industrial partnerships, becoming semi-autonomous. These centers are thought to bridge the gap between the remote academia and profit-focused industry.

Funds addressed to both industrial players and academic research centres, especially in the development of biosimilars, have facilitated collaborations between the industry and academia. Tübitak’s 1004 project stands out as one of the programs that brought these two loose ends together. Atabay, one of the well-established pharmaceuticals company and a leader in paracetamol production, is a forerunner in university partnerships, with eight collaborations in total. Since 2015, the company has worked with ITU and Marmara University’s Department of Pharmaceutical Biotechnology to produce a biosimilar product starting from cell bank to final product, completing the know-how arch and removing the need to import proteins. 23 scientists were also thus trained at Atabay.

Doğan Taşkent, board member of Atabay, is also on the board of the University Industry Collaboration Centers Platform (ÜSİMP) and an authority on what these collaborations entail: “We noticed that in Turkey the collaborations are not between the university and the industry, but are tied between an academician and the industry. We need to change the nature of this contract from the individual to the institution,” he said.

Because of the legal framework, the responsibility is shifted away from the university body to the individual professor, which does not make universities accountable or reliable in long-term projects that can last up to 10 years.

When Turkish Prof Tanıl Kocagöz returned from his studies at the University of California in 1994, he wanted to convince his country’s academia of the importance of industry-university collaborations: “It became clear to me that the success of American biopharma was due to this prolific collaboration; the headquarters of the largest biotech companies are located near the campuses of universities like Stanford,” he said.

It took another decade before Turkey realized the importance of this key partnership. Now, Professor Tanıl Kocagöz is head of Departments of Medical Microbiology and Biotechnology at Acibadem University where he has been able to realize his hopes. Three years ago, he started a partnership with Turgut İlaç to produce biosimilars. Although he does not deny the importance of biosimilars in bringing money into the country, his hopes go further: “Without producing original products, our survival will be limited to imitating others. Of course we can start with producing biosimilars, but this should not be the end point in sight.” 

Aiming further: The long way to original research

Pharma players, for years conditioned by a mentality of rigorous cost saving, are partially reconfiguring their business models to one characterized more by spending than by profits, at least at an initial phase. Cinnagen, a company that has invested US$600 million in its pipeline, will spend between US$30 million to US$50 million on each biosimilar drug before it reaches the market. Stepping in with understandable caution, even large companies with big R&D centers often do not engage in original research that will lead to breakthroughs in the industry. As Hüseyin Yılmaz, general manager of Has Biotech, stated: “The Turkish market is more focused on the commercial space rather than the scientific space.”

However, Professor Tanıl Kocagöz from Acibadem University believes that the obstacles can be overcome and points at the drug discoveries taking place behind the doors of universities and research centres: “First of all, we have to trust ourselves and fight against the belief that developing drugs is too expensive; secondly, we need to fight against the misconception that nothing innovative can come out of an industrial country like Turkey.”

Developing original drugs is a risky business because the money put into development must also cover the costs for all failures, and these are likely to be numerous. High-attrition and high-costs are some of the most powerful factors in influencing behaviours in original drug development. Biotech production also changes the way manufacturers look at the purpose of the investment. In traditional pharma manufacturing is the primary focus, tagged to which R&D investment represented minor figures, but in biotech production, R&D costs make up to 70% of all investment. 

Technically advanced work on both upstream and downstream processes as well as work in developing original molecules is confined to research centers that bridge the steep knowledge gap in biotech.  GEBI-Genetic Engineering and Biotechnology Institute, belonging to Tübitak, is the national research institute for finding and conducting biopharmaceutical research and development in Turkey. This year is the 16th year of development for its original molecule, which is nearing market entry. In the fashion of American or South Korean PPPs (public-private partnerships), newly created research centers act as intermediate entities in the transfer of knowledge. These are able to carry out the initial stages of research and product development, from laboratory studies to animal testing and up to Phase 1 of clinical studies, mostly supported by public grants. Despite the government’s investment, this research is often not turned into an output that can benefit society: “There is a problem in the seamless transformation of an idea to an end-product,” believes Professor Fazilet Vardar Sukan, director of Sunum Research Centre.

There are many ideas simmering in the labs that do not reach the ears, interests or the pockets of industrial partners. For instance, Biomedicine and Genome Centre (IBG) is one of the few to engage in original molecules especially in the area of rare diseases and cancer treatment, collaborating with three American start-ups and one Turkish company for biosimilars development, but little of the original research sees the light out of the lab: “Without commitment for investment by the private sector it will be hard to introduce novel products to the market,” said Mehmet Ozturk, director of IBG.

The government funding initiated a kick-start to the sector, but these incentives must be met by private investment, otherwise, many of the biotech projects are on stand-by.

The investment scene

Looking at other countries that have dramatically developed their biotech sector, South Korea comes to mind as one of the world’s most innovative countries. The commitment of the Korean government to developing innovative sectors was coupled with strong initiatives in education, Korea being one of the biggest spenders on education in the Asia Pacific region. The government pours billions of dollars into the development of new drugs and supports venture firms and start-ups in biotech. Turkey’s approach aims to emulate South Korea in turning biotech into an engine for the economy. To do so, the government needs to lend its full support: “Looking at countries like South Korea, Egypt, India or Argentina, one notices that the biotech sectors achieved success because the authorities conferred market protections. In Turkey, there are a number of biotechnology companies, but if we look at market shares, not one of them is in a strong position to grab higher takes,” said Ersin Erfa, CEO of Centurion.

Start-ups supported by venture capital firms are the traditional commercial intermediaries to send an idea from paper to profits. However, Turkey does not have a strong start-up culture in biotech. The Turkish biopharma sector is mostly made up of the old companies exploring new ground, with a few start-ups scattered in the landscape. Often, the new entities are spin-offs of parent companies with stakes in classical pharma and other verticals. Arven, for instance, is the largest investment made by parent group Toksöz in a high-tech production facility of 28,000 square meters. Other start-ups likewise rely on personal and professional connections to fund their ideas. Gizem Dinler, associate professor at Istanbul Technical University, believes start-ups cannot be integrated in the ecosystem because large firms galvanize all investment sources: “These are the rules of the game, but the government should intervene to push for the industry to prosper as a whole,” she said.

In seeking investment for FloraBio, a start-up launched in 2016, founder Cem Erdem has been confronted with another challenge facing the wider sector. Explaining to investors FloraBio’s product – a cell line development bank – has proven to be one the most difficult aspects. The language of biotech is new and its mastering requires patience. Investors tend to be oriented towards tangible products with immediate results and the development of biopharma products is anything but short or easy to explain: “The investors that we approached did not know enough about biotechnology and we had to educate them about this industry to encourage their investment. There are some companies that are willing to invest in biotechnology, but these companies are looking for something tangible and are not necessarily confident to invest in a start-up company,” explained Erdem.

Eventually, Erdem used US$3 million from personal savings and found a German bank interested to lend the rest. Three months after the company was founded, the coup attempt took place, driving inflation rates up and scaring investors off for the longer term. The Turkish banking sector, which is comprised of a stable number of 50 banks, became even more inaccessible for SMEs like FloraBio. The consequences of the crisis of 2018 are still palpable on the investment side. The high interest rates make funding incredibly expensive, businesses dependent on foreign materials and imports ran into difficulties. With many companies going into debt or debt restructuring, private investments crashed. President Erdoğan pleaded to bring both the bank rate and inflation under single digits. The national bank slashed the rate by 10% in the first manoeuvre referred as quantitative easing to pump cheaper money into the economy. Since July 2019, interest rates have been repeatedly cut from their peak in 2018 at 24% to rest now at 12%. Economists warn there is little room for further decrease given the risks that inflation may increase again.

In the past five years, credit extension to the private sector increased from 51.2% of GDP in 2013 to 63.6% of GDP in 2018, stalling in the second half of 2018. High levels of external debt is one of most the persistent challenges for Turkey’s economy. The unpredictability of these cash flows, with debt expected to mature at the beginning of 2020, weans investor sentiment. Policy uncertainties have not been enticing foreign investment either, which today is at a low 1.7% of GDP. Bearing such risks in mind, financial institutions are less likely to offer long-term investment to SMEs as compared to larger corporations. To support businesses the government is offering measures such as providing credit instalments and incentivizing SMEs through financial aid. For instance, authorities launched a Credit Guarantee Fund to help of SMEs.

Unsurprisingly, the wider consequences of market instability are reflected in a reluctance to invest. At odds with the long gestation of biotech projects is a shortsighted investment culture. “Turkish investors are risk averse and unwilling to commit their capital for longer than three to five years. This mentality is not compatible with start-up culture, which requires 10 to 15 years to see a return on investment,” explained Dr. Mehmet Öztürk, director of Izmir Biomedicine and Genome Center (IBG).

For Arven, a start-up and the recipient of a large investment made by its parent company, Toksöz, it took seven years to bring its DPI (Dry Powder Inhaler) device to the market. Before it can secure further investment, Arven has decided to become a CDMO, producing therapeutic proteins and offering services in similarity studies, bioassay studies or receptor binding studies. “In Turkey, one cannot predict the future further than tomorrow and thus it is difficult to make precise schedules with defined targets. The pharmaceuticals business is a challenging industry across the world, but it is 10 times more so in Turkey,” said Deniz Demir, GM of Dem Ilac.

Expectations are high in the next three years, but so is a feeling of uncertainty. The 11th National Development Plan, the broad policy manifesto through which the priorities of Vision 2023 are identified, targets the improvement of the business and investment climate as one of the 25 priority transformation programs. Turkey’s 2023 Vision is premised on expansionary macroeconomic policies, including higher spending and incentives to bolster consumption, employment and investment, but the country’s economic plans should also include efforts on increasing transparency and promoting savings rather than corporate indebtedness. Re-asserting macroeconomic credibility needs to be a prime consideration to avoid further capital flight and reduce risk.

Turkey’s chance to become a leading pharma production hub annotated on the world map is contingent on its ability to tie-in the different strategies on the axis of local production, global expansion and upgrading to high value products. Biopharmaceuticals need to pursue from the very beginning a global strategy to legitimize large investments. If this is successful, the trade deficit can not only be reduced, but also reversed. “All the elements are there,” said Zeynep Atabay, owner of Atabay, referring to the technical and scientific acumen, the industry players and willingness on the side of the government, but she stresses: “These elements need to be orchestrated in a coordinated manner and the right capital invested in the right projects.”