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Published: November 3, 2010
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Assessing the IVD markets of Brazil and Mexico

As the two largest markets in Latin America with large populations and currently low per-capita spending on IVDs, the potential for growth in Brazil and Mexico is significant.

By: Carl McEvoy

IVD Technology previously published an article (September 2007) on the IVD markets in Brazil and Mexico, Latin America’s two largest markets, which was written by McEvoy & Farmer (Seattle). At that time, growth was strong in both markets, and their futures looked optimistic, but no one knew that 2008 would bring a worldwide financial crisis.

This article discusses how these two markets have fared during the past two years and what the future holds for them.
McEvoy & Farmer has been studying these markets since 1995 and has completed its fifth study on them. Looking at the current market estimates, the answer to how they have weathered the world recession is, in short, quite well.
Figures 1 and 2 show the growth of these two IVD markets through the periodic market studies. Currently generating $880 million in annual revenues, Brazil retains its position as the world’s ninth largest IVD market and has grown approximately 10% per year since the last study. With $328 million in revenues, Mexico ranks eleventh in the world and has grown about 13% per year since the last report. Tables I and II show the breakdown of these totals into their key market segments.

What’s New in Brazil
•    The Brazilian economy sailed through the worldwide recession quite well. No big companies or banks went broke, and the country’s macroeconomic position is strong. Many economists expect Brazil’s economy to grow 5-6% this year.

•    The exchange rate for the Brazilian real moved around a lot during the three years since the last study. But between the release of the 2007 and 2010 reports, the real strengthened against the U.S. dollar, moving from a rate of 2.15 to 1.80.

•    Laboratory consolidation in the private sector in Brazil continued, and private labs are now subcontracting their services to public hospitals, a trend that is expected to continue.

•  Siemens completed its consolidation, which was only beginning when the 2007 report was done. Medlab, the former DPC office, emerged as its own distribution company.

•  Bio-Rad bought DiaMed and moved its headquarters to Lagoa Santa, near Belo Horizonte, where DiaMed has a manufacturing site.

•  Inverness Medical Innovations bought Prodimol Biotechnologia, which is also in Belo Horizonte.

•    Bio-Manguinhos, the vaccine, diagnostic, and pharmaceutical manufacturer for the Oswaldo Cruz Foundation, expects to introduce molecular tests for blood screening of HIV and HCV soon.

Overview of Brazil
The Healthcare Sector. Healthcare is provided at no charge to all of Brazil’s citizens at public hospitals. Employees and employers contribute to the National Institute for Social Security (INPS) to pay for this service.
Spending on health is roughly 8% of GDP. Public resources for health come from the federal, state, and municipal governments and some foundations. The federal government funds approximately 65% of public healthcare spending; municipal and local sources fund about 35% of spending.

It is estimated that 15-20% of Brazilians have private medical coverage and receive such coverage from Brazil’s private medical sector. Brazilians often get medical insurance in the form of a contract between their employers and private health insurers.

IVD Market Segmentation. The IVD market in Brazil is divided between 60-65% in the public sector and 35-40% in the private sector. Almost 40% of the IVD market in Brazil comes from the São Paulo area. The Rio de Janeiro area makes up nearly 20% of the market. The number-three market is Minas Gerais, home of Belo Horizonte, followed by Paraná and Rio Grande do Sul, the southernmost state of Brazil.

Laboratories. The total number of labs in Brazil is estimated to be 12,000, but this number includes about 5000 labs that are little more than collection sites. The number of laboratories that represent potential customers is closer to 7000.

The IVD Technology article published in 2007 discussed Brazil’s having approximately ten large private laboratories (or chains of labs). Today, this number has decreased. About five large private labs have bought most of the mid-sized laboratories and are buying small labs and turning them into collection sites. The large labs, which in the past have had very regional strengths, are opening branches in each other’s territories as several seek to become national chains.

The largest private laboratory in Brazil is Diagnosticos da America (DASA), which was created in 1999 by combining Delbony and Lavorisier of São Paulo with Brownstein and Lamina of Rio de Janeiro. They later bought Frishman Einsengarten in Curitiba, and they have a total of about 20 branches.

H. Pardini of Belo Horizonte is second in test volume, followed by the Association of Philanthropy and Research (AFIP), which is outside of São Paulo. Sergio Franco of Rio de Janeiro is number four, and Laboratório Fleury of São Paulo is fifth. While they are primarily a reference laboratory for esoteric testing, they are moving to include more routine testing.

IVD Product Registration. IVD product registration in Brazil is done by Agéncia Nacional de Vigiláncia Sanitária (ANVISA). ANVISA is a branch of Brazil’s Ministry of Health. Approvals for blood screening products are done by the National Institute for Quality Control in Health (INQCS).

All IVD instruments and reagents must be registered by a Brazilian company. This registration involves a significant amount of documentation, and if any mistake is made in the documents, they may be returned, which then requires a resubmission. Multiple companies can register the same product, or if the firms are cooperating, they can use one registration. All products must be re-registered every five years.

In general, it takes about six months to register reagents and about a year to register IVD instruments. There is a sliding scale of costs for registration which depends on the annual sales of the company doing the registration. The cost runs from as little as $250 to as high as $7,000.

Starting in May 2010, ANVISA is requiring GMP certification by Brazilian authorities of the manufacturing plants of products being imported into the country. This certification involves a visit by Brazilian officials to each plant. An IVD company pays for these visits, which have been taking place during the past year in preparation for this regulation.

Many people doubted that ANVISA would complete all inspections before May and expected the deadline to be moved. Nonetheless, the impact of this new regulation will be dramatic. By adding a significant cost to the registration process, products with smaller potential sales and IVD companies with modest sales expectations will reconsider entering the Brazilian market. Many small firms are expected to drop out, making the market less competitive and perhaps benefitting those companies remaining. However, it will increase the prices in the market and reduce the choices available to labs.

IVD Market Growth. While the number of labs in Brazil continues to decline, test volumes have increased at a modest pace. In total, the IVD instrument market will increase in the 4-6% range during the next two years, while the reagent portion of the market will grow 6-8% per year. The reason the instrument growth will lag behind reagents is that the consolidation of testing among the major private labs means a smaller number of sites that need instruments.

The public sector is growing a bit faster than the private sector. The government’s finances are in reasonably good shape, and they have been making more money available for healthcare.

In the separate IVD sectors, the highest growth rates are in coagulation at approximately 10% and immunochemistry at about 9%. While Brazil’s molecular diagnostic market has been growing in the 14-16% range, it is difficult to predict this area because prices have recently declined substantially and two government decisions could alter the future of this market. The first decision is whether to require molecular blood screening, and if so, whether to source the tests in the private sector or through the semipublic local organization Bio-Manguinhos. The second is the possible transition from end-point to real-time testing in the public sector.

What’s New in Mexico
•    Mexico’s economy followed the United States into a recession, and while its IVD market has maintained modest growth, there has been a shift from private testing to a free or low-cost alternative of public testing. The public sector has been able to continue funding the majority of the market, and Mexico should follow the United States out of recession, so the outlook for the IVD sector remains optimistic.

•    The exchange rate in Mexico has changed from 10.9 pesos per dollar in 2007 to the current level of 12.40, an almost 14% decline for the peso during the past two years. There is very little domestic IVD manufacturing in Mexico, which has resulted in price increases for local labs and the government.

•    At this writing, the Instituto Mexicano del Seguro Social (Mexican Institute of Social Security) or IMSS, which accounts for more than 40% of the total IVD market, planned this month to award contracts for a three-year period, with all the tenders done at one point in time.

•    Siemens had started its consolidation of Bayer, Dade Behring, and DPC when the last report was done. The Siemens consolidation is now complete.

•    Qiagen opened an office in Mexico in May 2008 and now has about 32 employees in the country.

•    At the end of 2007, Genzyme acquired DCL, and they continue to use the DCL name in Mexico.

•    China’s most successful diagnostic exporter, Mindray, opened its Mexican office in October 2008. They are growing rapidly and expect to add at least six more staff members in the near future.

•    Influenza A H1N1 originated in Mexico and remains an issue, but no more so than for the rest of North America. Preparation for H1N1 has given a significant boost to the local molecular testing market.

Overview of Mexico
The Healthcare Sector. Mexico spends 6.5% of its GDP on health, with a little more than half of this coming from private expenditures. Approximately 45% of healthcare spending comes from the government.

The two main public providers of healthcare are IMSS and the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (Institute of Security and Social Services for the State Workers), or ISSSTE. IMSS covers about 35 million people and ISSSTE another 9 million. The two organizations are funded by employers’ and employees’ contributions, and in the case of ISSSTE, transfers from the federal government.

About 5% of the population has private health insurance. Those people not in the social security or private schemes and without access to other providers can obtain free healthcare from the Secretaría de Salud (Secretary of Health) or SSA.

IVD Market Segmentation. A little less than 30% of Mexico’s testing is being done at private labs. The remaining bulk of the testing, approximately 70%, is split among public institutions as follows: IMSS is the largest purchaser with 42% of the market, SSA is second at 15%, followed by ISSSTE with 10%. Other small institutions make up about 5% of the total testing.

The IVD Technology article published in 2007 reported on a gradual shift toward more private testing in the Mexican market. With the economic problems of 2008, that shift has reversed as more people are seeking out free or low-cost testing through the public sector. Private laboratories have reported declines in their testing volumes of 20-50%. The largest labs are generally doing better than the smaller ones.

Public Sector Purchasing. In 1996, IMSS started issuing contracts based on the number of reportable results from the labs, with the contractors providing all the IVD instrumentation, reagents, and controls. The contractors, or integrators as they have come to be known, purchase diagnostic systems from several manufacturers in order to assemble the complete line that the laboratories need.

IMSS has been completely integrated since 2005, and this concept has been attempted by other public sector purchasers. However, the organizational structure of SSA and ISSSTE allows for state-by-state decisions, in contrast to the central national authority of IMSS, so the integration concept has never fully caught on among the state decision makers.

Six domestic distributors are integrators. By size, they are Falcon, Centrum, Impromed, Dicipa, Hemoser, and Selecciones Medicas. The first three are much larger than the others. The largest, Falcon, is based in Monterrey and, along with Centrum, has a very long-standing relationship with IMSS. Impromed is also very strong, but only in their home state of Jalisco, the location of Mexico’s second largest city, Guadalajara. Dicipa is the leading integrator with SSA.

IMSS previously awarded 30-month contracts and will award tenders for a three-year period in November 2010, with all the tenders done at one time. This will determine what will transpire in almost half of Mexico’s IVD market for the following three years. It appears that some insiders already have an idea how many instruments will be placed in this next contract.

Laboratories. In addition to the public sector laboratories that serve the institutions mentioned above, Mexico has about ten large private reference labs, 25 medium-sized labs, and many small laboratories. The largest private lab is the Chopo/Carpermor/CPC combination, followed by Laboratorio Medico Polanco. Other important labs include Laboratorios Azteca, Moreira, Laser, Olarte y Akle, Unidad de Patología Clinica (UPC), Estudios Clínicos, Dr. T.J. Oriard Biomédicos, Quest (formerly Frontera), LAPI, and MSB. These labs do esoteric tests and routine testing, while Laser is more of a traditional reference lab.

Mexico has been going through a process of consolidation of its laboratories since the first report in 1996. Every time a study has been done, there are fewer small laboratories, and a higher proportion of the testing is being done at the largest labs. While this consolidation has slowed down, it does continue. The total number of labs in Mexico has decreased from 3500 in 1999 to 2500 in 2009.

This trend is expected to continue, based on the lower costs of high-volume testing and regulatory changes in areas such as quality control that continue to make it more difficult for smaller labs to operate. The current pressure that the private labs are under from declining test volumes may also force some of the smaller labs to close.

IVD Product Registration. IVD product registration in Mexico is done through a branch of  SSA, the Comisión Federal para la Protección contra Riesgos Sanitarios (COFEPRIS). IVD instruments and each reagent kit must be registered before they can be sold. Registration must be done by a Mexican entity, which then owns the registration. This process can cause problems for foreign firms that register their products through a local distributor and then decide to make a change. Selling products during the registration process is illegal, although it is believed this occasionally is done.

The time it takes to register an IVD product, the difficulty of registration, and the costs have all increased since the last report in 2007. While there are specified limits to the amount of time that the government can take in the approval process, they are often exceeded. For most IVD products, the average registration time is between three and six months, and the cost is about $500.

In the past, product registrations were given with no expiration date. However, this has changed, and IVD products must be re-registered every five years. For product registrations that had no expiration date, they have all been given an expiration of February 2010. This has caused serious problems, as this large mass of product registrations has strained the capacity of those IVD firms making the registrations and COFEPRIS’s ability to process them.

IVD Market Growth. Private testing volumes in Mexico are down as individuals seek out free or low-cost testing in the public sector. Public routine testing is up modestly but specialty testing has declined.

There is currently more of a preventive-health focus in Mexico. Private labs are promoting batteries of testing as a health checkup that is without a visit to a physician. The test results are delivered by mail, and if there are problems, patients are told to see their doctors.

IVD market growth in Mexico has continued steadily during the past two years, and the impact of the decline in Mexico’s economy has yet to affect the IVD market. Growth is expected to be modest in the routine testing segments of chemistry and hematology; perhaps in the 3-5% range. Urine chemistry will be the lowest growth area with price erosion reducing the total market slightly. Coagulation, which has been growing in the 15% range, will slow down during the next two years to about 8-10%.

Immunochemistry should also increase in the 8-10% range, driven more by the introduction of new tests and the conversion of EIA testing to chemiluminescent methods rather than gains in testing volume. Finally, molecular testing has seen a sharp jump due to a set of public health laboratories being established with the capability to test for H1N1. Instrument sales are up as well, though this will not continue through next year. While the growth rate is difficult to establish in this fluid environment, it has been a very strong year for molecular testing, which may lead to a decline next year as the increase in reagent testing volume does not make up for the decline in instrumentation sales.

Much of the conclusions made in the IVD Technology article published in 2007 remain true today. Of the top ten IVD markets in the world, only China and India are growing faster than Brazil and Mexico. But there is still plenty of room to grow. Brazil’s 190 million people spend an average of $4.65 annually in IVDs, while Mexico’s 111 million people spend $3.00 each. Comparing this to the $30-35 per person in spending on IVDs in most developed countries, it is clear there is still great potential in these markets.

Carl McEvoy is a partner at McEvoy & Farmer (Seattle). He can be reached at carl@mcevoyandfarmer.com.

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