The Market for Medical Devices in Latin America: Leaving the years of unpredictability far behind, and growing steadily into an opportunity to build a stable business
It is already a number of years ago that we started wondering when countries like Brazil, Mexico, Colombia and Argentina would finally leave their status of “promising” behind them, and develop into predictable, flourishing healthcare markets that would allow sustainable commercial operations. With a bit of candor, Latin America is developing into that sizable, predictable part of the world market of medical devices, in spite of the economic hazards that economies like Argentina seem to run into on a fairly regular basis.
Looking at the major countries in the region (Brazil, Mexico, Colombia, Chili, Argentina and Venezuela) with a GDP of around $4.25 trillion, they represent the third largest economy in the world with a healthcare expenditure almost equal to China and India combined.
Brazil and Mexico represent more than 65% of the GDP of Latin America.
In terms of the CAGR % of health expenditure per capita, Mexico would be comparable to most Western European countries. Meanwhile Brazil has exceeded this in the last 10 year period; admittedly, coming from a lower base. The health expenditure per capita is growing steadily and will reach a level between about $700 in Colombia and $1400 in Chili, with Brazil and Mexico at $1200 and $950 respectively.
The medical device market in Latin America is expected to reach approximately $24 billion in 2015, slightly lower than previous expectations. This is due to less favorable economic expectations in countries such as Argentina, and certainly Venezuela, which has seen its oil-based economy collapse. On the other hand, e-medical is expected to exceed $1.1 billion in 2015-2016. Also, the reduced revenue from the larger capital equipment segment is similar to other parts of the world market.
The two largest markets are Brazil and Mexico with over $4 and $3 billion valued device markets respectively (total market, as well as locally produced and imported).
A series of interviews with “C-Officers” from the top 40 medical device companies indicate that a careful selection of Latin American countries are the main target markets, alongside traditional strong market such as Western Europe, Japan and the US.
Brazil is by now the country with the 6th largest GDP and Mexico the 13th in the world.
The MERCOSUR countries (Brazil, Argentina, Paraguay and Uruguay) are certainly heading for a sizable combined market. Colombia and Chili have shown signs of regular economic growth and prosperity.
Mexico, the second largest country south of the US, is today’s favorite for a couple of reasons. It is a member of NAFTA (North American Free Trade Association) with a friendlier regulatory climate, and without the import duties that turn Brazil into a bit of a challenge, which explains the sympathy for Mexico.
It is a long time ago, that a local manager of a sizable US company was put in jail for being caught importing diagnostic analyzers as “circus equipment”.
Brazil imposes (relatively) high tariffs on imports across diverse sectors. The simple rule is (was) that goods that were or could be produced in the country were hit harder than other products.
In any case, the taxation in Brazil is worth a thorough look. It is in most cases relatively straight forward, but as a result of this regimen, it makes sense to keep the border-crossing price (costs, charges, surcharges, margins) at a minimum until a later moment.
Products imported from MERKOSUR are in general without duties and there are a substantial number of issues that indicate the need for decent specialized advice.
Particularities of the area
Latin America is notorious for its unusually large captive market for “lifestyle” procedures. For example, Brazil and Mexico have two of the largest aesthetic markets in the world. There are more plastic surgery procedures in Brazil and Mexico combined, than in the United States (1.4 million vs. 1.3 million plastic surgery procedures per year respectively).
A survey also indicates that there were more non-surgical aesthetic procedures (such as injectables, fillers, and laser hair removal) in Brazil and Mexico combined than in the United States (2.4 million vs. 1.7 million non-surgical procedures per year respectively).
Another good illustration of the strength of the “lifestyle” procedure markets can be found in ophthalmology with vision correction procedures. Although the combined volume of vision correction procedures in Brazil and Mexico are not as high as in the United States (150,000 vs. 1 million+), it has a higher rate per capita than would be expected, given the GDP and purchasing power differences.
Regulatory clearance: Don’t leave it until later
Companies sometimes choose not to file in Latin America until they decide to go there, but that is a costly mistake given the regulatory process can be a major bottleneck.
CE marking or FDA approval is usually sufficient to get regulatory approval in each of the Latin American countries. Countries like Brazil and Mexico require that their national health agencies (ANVISA and COFEPRIS respectively) provide regulatory clearance before a medical product can be commercialized.
The complexity of the approval process depends on the definition of the risk classification of the product. Each national agency has guidelines that define the risk classification for each product based on the technology and the ensuing regulatory process. However, these do not differ substantially from the classifications in other parts of the world.
One should seek approval in Latin America as soon as CE marking, 510K or PMA approval is obtained, in order to maximize one’s options further down the road, particularly if the device is classified as a higher risk device.
Distribution: You need a friend !!
Finding the right partner is not easy. The medical device distribution industry in Latin America is highly fragmented with literally hundreds of small distribution companies. Tax evasion and FCPA non-compliance is rampant. Companies with no presence on the ground typically rely on distributors to play a much more important and strategic role -not only for providing commercial infrastructure, but also for devising the sales and marketing strategy, and positioning vis-à-vis local competing products.
This is of course a critical role; wrong pricing, positioning, targeting or messaging can make or break a product launch. Pricing is particularly challenging given that some countries like Brazil have exceedingly high import and sales tariffs. Besides a sales and marketing strategy, this may require a solid method and means of importation.
In a later stage it may be necessary to negotiate a different relationship with a distribution partner apart from just distribution.
Our advice is always: select, approach and (preferably) SELL your first product to a representative customer, such as a key opinion leader of that country, if this is possible.
If that gives a regulatory or legal problem, share the experience with a (potential) business (distribution) partner.
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About Helgert Van Raamt
Helgert van Raamt has 35 years of experience in running and setting up companies, big and small, in EMEA (and beyond). After his senior marketing positions with Organon Teknika and Abbott Labs and four years in Venture Capital as an investment manager for US, UK and NL based funds, he joined Nellcor Europe in 1989 and has lead this company through two consecutive M&A’s (Puritan Bennett and Mallinckrodt). The acquisition by Mallinckrodt for 2.7 Billion made Nellcor the most successful Medic venture after the Second World War. He left to set up the International Operation of Aspect Medical Systems and brought that to success. In three years it reached a revenue level of $10 million and was profitable two months after the start of the operation. Since then (2003) he has successfully advised numerous companies about setting up internationally or cleaning up an existing international operation, both independently and as a partner for TforG Group.