Latin America’s largest diagnostics markets break into the global IVD elite.
Photo by Jupiter Images
These are the best of times in the two largest IVD markets in Latin America. This year, Brazil's IVD market will pass that of the United Kingdom, becoming the world's eighth-largest IVD market. Mexico's IVD market, currently about the same size as Belgium's, is now the twelfth-largest worldwide and will break into the top 10 within three years. In 2007, these two countries will spend nearly $1 billion a year on IVD products and will take delivery of roughly 3000 new automated instruments.
Over the last 12 years, McEvoy and Farmer (Seattle) has published four studies of the IVD markets in Brazil and Mexico. Between 1995 and 2007, the Brazilian market has grown from $260 million to nearly $700 million (see Figure 1). During the same period, Mexico's diagnostics industry has grown from $125 million to nearly $250 million (see Figure 2). When McEvoy and Farmer started studying these markets in 1995, neither country had a stable currency, and both markets were full of structural inconveniences for international manufacturers. Today, both countries have stable governments, stable currencies, and ample foreign exchange reserves.
Figure 1. (click to enlarge) Strong growth in the Brazilian testing industry over the last 12 years has made it one of the world's largest diagnostics markets. Source: McEvoy and Farmer.
For IVD companies with instrumentation to sell, these countries are particularly important. Brazil has nearly 8000 clinical labs; Mexico has more than 2500 clinical labs. In 2007, these 10,500 labs will add about 900 new chemistry autoanalyzers, approximately 1100 automated hematology systems, and more than 800 automated immunoassay systems. Demand for other automated clinical lab instrumentation is comparably robust.
Figure 2. (click to enlarge) The Mexican IVD market has doubled in size over the last 12 years, thanks in part to a stabilizing currency. Source: McEvoy and Farmer.
With a population of 188 million, Brazil is by far the largest country in Latin America. The population growth rate, which was 1.9% from 1980 to 1990, has slowed to its current level of just over 1%. Brazil's population is forecasted to reach just over 200 million in 2020, at which time it is expected to level off. Mexico has an estimated population of 107 million. Its population growth rate has similarly slowed, from over 3% in the early 1970s to 1.9% in the 1990s, and to 1.2% currently.
The Brazilian economy has been stable over the last six years, growing at an average rate of 2.6%. With official inflation at 3−4% and a strong trade surplus, Brazil's economy appears set to continue its modest growth over the next two years. Through the 1990s, Mexico's average yearly growth rate was about 3%. Following a 6.9% boost in 2000, real gross domestic product (GDP) growth fell to minus 0.3% in 2001, due in large part to a slowdown in the U.S. economy. The following year, GDP growth recovered slightly, to about 1%. Mexico's current GDP growth is estimated at 4.5%.
It is surprising to long-term observers of these countries that one of the things they now have in common is a marked degree of macroeconomic stability. The introduction of the real as Brazil's currency in 1994 ended decades of high inflation. Some feared that this economic improvement would end in 2002 with the election of the leftist Lula da Silva, but da Silva's Workers' Party has continued the economic policies of his predecessor, Fernando Cardoso. Brazil now has a foreign-exchange surplus above $100 billion, and with da Silva elected to his second four-year term in October 2006, there appear to be no plans for major policy changes.
For its part, Mexico seems to have learned how to transfer power without an accompanying financial collapse. Since the 1994 Mexican peso crisis, there have been two presidential elections, neither of which has resulted in any financial problems. All of the country's macroeconomic fundamentals have improved in the last 13 years and, as with Brazil, there is little reason to expect any change in the near term.
So, while the growth rates of Brazil and Mexico are much lower than those of China or India, the two countries possess a stability that should allow for a steady growth of the IVD markets in each country.
The IVD Industry
Distribution. Another similarity between Brazil and Mexico is the presence of international IVD companies. Between 20 and 25 international manufacturers have offices in each country.
For companies working through distributors, the two countries are similar, with the exception that in Brazil it is more difficult to find distributors with national coverage.
In both countries there are focused diagnostic distributors that have been in business for decades. And while each country has its outlying areas, the bulk of both markets is very focused on the top three cities and the surrounding areas. McEvoy and Farmer's most recent reports profile the top 37 distributors in Brazil and the top 24 distributors in Mexico.
Although they house no offices of Chinese IVD companies, both countries are seeing the arrival of more and more products from China. Mindray Medical International Ltd. is the largest exporter, focused mainly on its hematology systems, but also on chemistry instruments. Dirui Industrial Company, Ltd., is bringing down urine-strip prices in both countries, and InTec Products Inc. is registering its rapid- and enzyme-immunoassay tests in Mexico.
Meanwhile, Nanjing-based Sinowa is selling automated hematology analyzers in Mexico, while Blue Cross Bio-Medical (Beijing) Co., B4B, and EASE are all active in Brazil. Chinese companies are expected to increase their share of these markets in the coming years.
Automation. The levels of automation in Brazil and Mexico are similar. While about 70% of the automated chemistry analyzers in both countries run under 400 tests per hour, each has a small but growing high-throughput chemistry market segment. The switch to five-part differential hematology systems, as well as combination blood gas and electrolyte systems, is taking place at roughly an identical rate. The same types of closed immunochemistry systems are working in both places. There is only a modest amount of sample automation, and consolidated workstations, or work cells, are just beginning to show up.
Table I. (click to enlarge) The size of Brazil's largest diagnostics sectors. Immunochemistry products dominate the country's IVD market. The currency exchange rate is R$2.15 = US$1.00. Source: McEvoy and Farmer.
Growth. The routine sectors of the IVD markets of Brazil and Mexico are growing at approximately 3–5%, with the exception of urine chemistry, which is declining modestly. Growth is better in the coagulation sector, particularly in Mexico, but both markets are being driven by solid increases in immunochemistry and molecular testing (see Tables I and II). This is particularly true in Brazil, where the markets and growth rates diverge a bit. The country's public sector has shown a willingness to fund infectious-disease testing, both by immunochemistry and molecular methods, perhaps in response to an AIDS prevalence rate that is over twice that of Mexico.
Table II. (click to enlarge) The size of Mexico's largest diagnostics sectors. Coagulation products hold a much higher market share than in Brazil. The currency exchange rate is Mex$10.90 = US$1.00.
Source: McEvoy and Farmer.
Product Registration. Another difference between the two nations is that product registration is easier in Mexico. Up until this year, product registration was done with the Secretaría de Salud (SSA)—the Secretary of Health. Samples were then sent to the Instituto Mexicano del Seguro Social (IMSS)—the Mexican Social Security Institute—if the company was interested in selling to the largest public-sector purchaser. This process is no longer necessary; registration with SSA is all that is needed. The time estimated to register a product is two to three months.
This compares rather well with Brazil, where it takes from six months to a year to register a product. This involves a significant amount of documentation; if any mistake is made in the documents, they may be returned, which then requires resubmission. The cost of registration depends on the size of the company doing the registration, a regulation designed to ensure that large foreign companies pay more than small local ones. All products must be reregistered every five years.
Trade and Protectionism. Brazil and Mexico also differ in their openness to international trade. Mexico is part of the North American Free Trade Agreement and, as a trading partner, is relatively open. Brazil, in contrast, retains strong antitrade tendencies. Although Brazilian tariffs have been lowered, nontariff barriers to trade continue, such as the sliding scale of product registration costs previously mentioned. One result of this is that Brazil has a much larger domestic IVD manufacturing sector than Mexico. In Mexico, local production is confined mainly to repackaging and labeling operations, which results in products that appear to be locally made, but for the most part are imports. In a 2007 study on Brazil by McEvoy and Farmer, 15 local manufacturers were found to have a significant share of the reagent business in chemistry and hematology, in addition to making some small instruments. There is no apparent trend toward greater openness to trade in Brazil.
Laboratories. While the number of public laboratories remains relatively constant in both countries, automation and consolidation in the private sector are important aspects of these markets. Over the past decade in both Brazil and Mexico, large private chains have emerged that have focused testing in high-volume centers. They have bought rival laboratories and forced some of the smallest labs out of business, and while there is still something of a regional flavor to these private groups, some are approaching national status.
In Brazil, there are approximately 10 large private labs that are very strong in their respective regions. The largest private laboratory in the country is Diagnósticos da América SA, which was created in 1999 through the combination of Laboratório Delbony and Lavorisier, of São Paulo, with Brownstein and Lâmina Medicina Diagnóstica of Rio de Janeiro. Instituto Hermes Pardini of Belo Horizonte is second in volume, followed by Laboratório Fleury of São Paulo. Laboratório Fleury is the main reference laboratory for esoteric testing; as a result, its income is relatively high compared with its test volume. Sérgio Franco Medicina Diagnóstica of Rio de Janeiro is number four. Other notable private laboratories include Laboratório Faillace and Balagué Center SA in Porto Alegre, and Frishman Einsengarten in Curitiba.
In Mexico there are about 10 large private reference labs, approximately 25 medium-sized labs, and many small laboratories. The largest laboratory is the Laboratorio Médico de Chopo/Carpermor/CPC combination, followed by Laboratorio Médico Polanco. Other important labs include Laboratorios Dr. Moreira in Monterrey, Laboratorio de Asesoría y Servicio Referido SA (LASER), Olarte y Akle Bacteriólogos SA, Unidad de Patología Clínica (UPC), Biomédicos, Quest (formerly Laboratorios de Frontera Polanco SA), LAPI, MSB, and Estudios Clínicos Dr. T.J. Oriard SA. While often referred to as reference labs, all of these laboratories conduct a full line of testing.
While the total number of laboratories continues to shrink in both countries, total testing volume is increasing, and this consolidation brings with it opportunities for higher-volume automation. The number of laboratories in both Brazil and Mexico that have access to automated chemistry and hematology systems is growing rapidly. At this point, about 1350 of Brazil's labs and approximately 1100 of Mexico's labs are automated.
Market Segmentation. While the public sector is important in both countries, government purchases in Mexico make up a larger share of the IVD marketplace. In Brazil, around 60% of the market is public. About 70% of Mexico's market comes from the public sector, with IMSS making up about 40% of the total. While that difference may not seem significant, there is another aspect of public-sector purchasing in Mexico's market that has become very important: the role of the integrators.
Mexico's Integrators. In 1996, McEvoy and Farmer reported on an “interesting trial approach to running public laboratories.” Under this system, IMSS issued contracts based on the number of reportable results from the lab, with the contractor providing all the instrumentation, reagents, and controls. The contractor, or integrator, as they have come to be known, purchases diagnostic systems from several manufacturers in order to assemble the complete line that the laboratory needs. Molecular testing is the one exception; this falls outside of the tenders for the integrators.
The idea solved some clear problems IMSS was having in running its labs, such as keeping reagents supplied. But it also required the contractors to provide results without employing the laboratory staff.
McEvoy and Farmer expected problems with this approach (for example, it resulted in much higher costs per test), and therefore was a bit surprised to find that IMSS expanded the system over the following years, including to all of the Mexican states, and in 2005, to the Federal District of Mexico City.
IMSS has been completely integrated since 2005, and the concept is now becoming popular with the other public-sector purchasers. At this point, about 50 of the approximately 265 hospitals that are administered by Mexico's SSA have presented bids on an integrated basis, and the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSSTE)—the Institute of Security and Social Services for the State Workers—is also starting to experiment with this idea. It appears to be a growing trend, but it does come with some problems.
IMSS occasionally runs out of money as doctors have become accustomed to the idea that they can order any test and the laboratory will actually have the reagents to conduct the test. The result has been testing volumes that have exceeded the estimates on which the bids were based, leaving IMSS scrambling for additional budget approvals.
Eight domestic distributors are integrators. Listed by size, they include the following companies: Falcon, Centrum, Impromed, Hemoser, DICIPA, Selecciones Médicas, Systemes Integrales Diagnostico (SIS), and BioDist. The first three companies listed are much larger than the others. The two largest, Falcon and Centrum, have very long-standing relationships with IMSS. Impromed is also very strong, but only in its home state of Jalisco, the location of Mexico's second-largest city, Guadalajara. Hemoser is strongest among blood bank companies, while SIS works mainly with the ISSSTE.
The effect of the growth of the integrators has been a shift in power away from the diagnostic manufacturers to these gatekeepers to the public sector. Diagnostic manufacturers must work with these firms to reach approximately two-thirds of the total Mexican IVD market. Each of the integrators has favored diagnostic suppliers and is able to achieve substantial concessions from them.
Carl McEvoy is a partner at the market research firm McEvoy and Farmer (Seattle). He can be reached at carl@mcevoy
Currently, the trend is toward further integration, and there are now powerful vested interests behind the continuation of this method of purchasing. However, the cost could eventually undermine the model. IMSS is always short of money. In one recent case, an IMSS lab rejected the integration method and went directly to the manufacturers to get better prices. Perhaps such situations will start to reverse the trend.
The IVD markets of Brazil and Mexico are not without challenges. Still, there is vast potential in their growing economies. The combined population of these two countries is roughly the same as the United States, and the per capita diagnostic spending averages just $3.00. When you compare this with the $17–$22 that is spent diagnosing the citizens of North America, Europe, and Japan, the significance of the Brazilian and Mexican markets becomes clear. Of the top 10 IVD markets in the world, only China and India are growing faster.