BBI Contributing Editor

SAO PAULO, Brazil – The Latin American market for medical products represents one of the smaller geographic segments of the global market but also comprises one of the more rapidly growing segments. As shown in Table 1, the total Latin American products market approached $8 billion in 2000 and continues to expand in many segments at a rate in excess of that for the worldwide market. Annual health care spending per capita is low compared to most other countries, ranging from $71 in Ecuador to $795 in Argentina, as compared to $3,858 in the U.S. (1999 data).

As another measure, Mexico spends only 4.7% of gross domestic product (GDP) on health care, vs. 7% to 10% for major countries in Western Europe and more than 13% for the U.S., according to the most recent statistics from the Organization for Economic Cooperation and Development (Paris). As a result, there is considerable room for market expansion as the Latin American economies advance and health care becomes a higher priority for the population.

As shown in Table 1 on page 182, Brazil is the largest country market for medical device products in Latin America, accounting for 45% of the total. The health care sector in Brazil is forecast to expand at a rate of 15% per year through 2003. A key characteristic of most Latin American countries, exemplified by Brazil, is that a small percentage of the population (20% to 25%) has a relatively high standard of living and can support a high standard of health care, equivalent in many cases to the level available in the U.S., Western Europe and Japan, while the remainder are able to afford only basic health services or none at all. Consequently, while there is demand for sophisticated medical equipment and devices, the market for such products is quite small at present, relative to the worldwide total. Other major country markets for medical products in Latin America include Mexico, Colombia, Argentina and Chile. Puerto Rico also represents a significant market, according to suppliers in Latin America, with a market size similar to that of Chile.

Hospitalar 2001, organized by Hospitalar Feiras E Congressos in cooperation with Messe Dusseldorf (Dusseldorf, Germany), is one of the largest exhibitions of medical products held in Latin America. This year's exhibition, held here in June, was attended by an estimated 55,000 visitors and provided an opportunity to view not only the products offered in Latin America by most of the global suppliers of medical products but also to evaluate the wide range of increasingly sophisticated products now offered by Latin American suppliers. In addition, there is a growing presence of Asian medical product suppliers, particularly Korean suppliers, in the Latin American market.

The medical products market in Latin America is continuing to evolve as trade barriers are lifted, although the process of opening up trade is proceeding more slowly than most global suppliers would prefer. Brazil, in particular, began a process of courting foreign investment and restructuring its legal system to one that is more liberal and supportive of foreign companies in the mid-1980s. In addition, the economies in Brazil, Mexico and some of the other Latin American countries have stabilized considerably over the past decade. The Mexican peso, for example, has remained essentially unchanged vs. the U.S. dollar since early 1998. The Brazilian real has not been as stable, indicating that the business climate in that country still has some elements of uncertainty, particularly for capital equipment suppliers.

The economy in Argentina is probably the least stable of any major Latin American country, with the recent de facto devaluation of the Argentine peso raising new doubts about economic stability throughout the entire region.

Nevertheless, the trend in Latin America is clearly toward a business environment that is driven more by market forces rather than protectionist policies. Furthermore, economic trends in the region have generally been improving. Brazil recorded a 4.2% jump in GDP in 2000, the highest growth in five years, and better than the 4% predicted by the government. Growth of 4.5% is forecast for 2001 in Brazil, and inflation is low by historical standards in that country at 5% to 7%. The economic trend in Mexico also is positive.

Key growth segments in the Latin American medical products market include home health care products and services; dialysis products and services; e-commerce and telemedicine; cardiology products; products for the diagnosis and treatment of infectious and respiratory disease; and glucose monitoring products. Leading suppliers in the region include global companies such as Philips Medical Systems/Agilent Technologies (Best, the Netherlands), Siemens Medical Systems (Munich, Germany), Baxter Healthcare (Deerfield, Illinois), GE Medical Systems (Milwaukee, Wisconsin), Becton Dickinson (Franklin Lakes, New Jersey), Radiometer Medical (Copenhagen, Denmark), as well as Latin American manufacturers and distributors, including Dixtal Biomedica Industria E Comercio Ltda., Intermed Equipamento Medico Hospitalar Ltda., and Rimed Comercio E Representacoes Ltda. (all Sao Paulo, Brazil). Other major product segments in the Latin American medical device market include drug delivery products, patient monitoring products, ultrasound imaging equipment and clinical laboratory products.

Although trade barriers for foreign suppliers in Latin America have been lowered by agreements such as NAFTA and free trade agreements between the U.S. and Chile, import taxes continue to be a major limiter of market opportunity for U.S. and European suppliers. In Brazil, taxes and duties on imported medical products are typically in the range of 53% to 54%, putting foreign suppliers at a distinct cost disadvantage. Some suppliers have established domestic branches, which import components of the final product at significantly lower tax rates (generally well under 10%) and then perform final assembly locally.

Some foreign suppliers have attempted to establish vertically integrated operations in Latin America including design, development, manufacturing and sales, but have found it difficult to marshal the needed resources to build operations that are equivalent in quality and efficiency to their domestic units. Latin American suppliers also often source a large percentage of their components from foreign manufacturers and typically limit their activities to system-level design and development and final assembly. However, the level of sophistication of Latin American companies is improving, and there have been recent examples of major acquisitions of such companies by global firms in other industries such as finance, as well as major investments in Latin American operations by companies in the automotive industry, such as Toyota.

Changes drive market evolution

Table 2 on page 184 describes key characteristics of the medical product markets in Latin America by country. Over the past 10 years, there has been a major movement within Latin America toward free-market doctrines, a movement that has begun to impact the health care market within the past two to three years. In Brazil, for example, 20% of the economy is now controlled by the state, vs. 70% during the dictatorship era. Correspondingly, privatization of various industries, including health care insurance, is beginning to have a significant impact on market structure. Chile pioneered the trend toward privatization of health insurance, and now most Latin American countries are following that lead. Privatization of health care in Latin America is also synonymous with a move toward managed care and improved cost-effectiveness of health care delivery, a trend that is strongly supported by the World Bank as a condition of further loans to Latin American countries.

Health care spending is increasingly dependent on economic health. There was a major economic decline throughout the region in 1999 as a result of Brazil's financial crisis and a corresponding negative impact on the medical product market, but most countries are now recovering, resulting in improved markets for medical products. Nevertheless, recent currency devaluations in Brazil have hindered further recovery somewhat and made the environment more challenging for foreign suppliers. Domestic suppliers in Brazil, however, are continuing to expand. There are now 250 manufacturers of health care products based in Brazil, including 86 suppliers of medical equipment, 47 suppliers of disposables and implants, 24 suppliers of laboratory products, and 16 suppliers of radiology products.

As in the rest of Latin America, most Brazilian medical products companies are small (28%) or medium-sized (68.7%), according to statistics from ABIMO/SINAEMO. However, a significant percentage of domestic suppliers in Brazil meet global quality standards; 79 of the 250 Brazilian manufacturers of medical products are certified to ISO 9000 standards or better.

An important trend in Brazil is insurance privatization. Insurance is now the top business sector of interest for entry by foreign companies in Brazil, ahead of information technology, energy and sanitation. There is an opportunity for growth in the private health insurance sector, since providers estimate that up to 35% of the population can afford private health insurance, but only 24% now subscribe. According to suppliers, private health insurance is growing rapidly even in poorer areas of the country, as individuals flee the deficiencies of the public system. Insurers in the private sector have been highly supportive of new cost saving approaches, such as home health care. There is even some government reimbursement for home care now, including reimbursement through social security agencies. As a result, there are now about 120 home care providers operating in Brazil.

An area that has attracted a number of suppliers in Latin America lately is home oxygen therapy, due in part to the high prevalence of respiratory disease in Latin America. Not only is the market for home oxygen delivery services growing at 10% or more per year in Brazil, but also demand is accelerating for ancillary products such as pulse oximeters used to optimize the use of oxygen in the home. Because the home health care market is relatively new in Brazil, having emerged only within the past two to three years, foreign manufacturers must choose their distribution channels carefully when entering the market, since many are not well positioned to address that segment.

Another growth segment of the home health care market is drug delivery. Companies such as Brasimpex (Rio de Janeiro, Brazil) are achieving strong sales growth with their infusion pump product lines in the home market. Providers of home care services are also entering the Brazilian market, including Interim HomeCare (Sunrise, Florida), the second-largest provider of home care services in the U.S. Interim has opened three offices in Brazil so far, and plans to open 30 more over the next five years, operating primarily as a franchiser.

As discussed by Interim's staff at the Hospitalar exhibition, the home care market in Brazil is about 15 to 20 years behind the market in the U.S. but is potentially the same size as a percentage of the total health care market. The Brazilian market differs from the U.S. in that physicians are directly involved in product selection and use, and they are an integral part of the patient management team, whereas nurses are the primary focus for home patient care and for sales of home care products in the U.S. Another feature of the home care market in Brazil, again because of its emerging nature, is a lack of regulations pertaining specifically to care delivered in the home. There also is a lack of the infrastructure that helps to support patients in the home. For example, there is no 911 emergency help line service as is commonly available in the U.S. Companies such as Interim view the lack of structure as an advantage since they can offer a proven structure that allows quality care to be delivered affordably. Interim is assessing Argentina as the next country in Latin America that it will target.

In addition to the home care market, there also is a significant market for hospital products in Latin America. Brazil has at least 7,000 hospitals, with approximately 650,000 beds, along with 23,000 health clinics and 11,000 laboratories. There is growing demand for intensive care products in Brazil, as indicated by a recent government initiative to fund expansion in the number of ICU beds to a level of 10% of all hospital beds in hospitals of over 100 beds. The growth in demand is expected to drive expansion in the market for products such as ventilators and patient monitoring equipment. Companies such as Philips/Agilent are launching sophisticated monitoring devices such as the Paratrend continuous blood gas monitor in Latin America, and there is growing demand for products such as EEG monitoring systems from Neurotec (Itajuba, Brazil). However, at present the overall market for patient monitoring systems is flat throughout most of Latin America, and, for foreign suppliers, the market has become even more challenging due to currency exchange rates that favor domestic suppliers.

While medical equipment from the U.S. and Germany is respected in the region and often is preferred over domestic brands, the current cost premium can be prohibitive in many cases. Long-term, however, suppliers believe that the market will grow as the expanding middle class demands better health care. The rapidly developing wireless communications infrastructure in countries such as Brazil will also facilitate growth in the patient monitoring and clinical information systems markets, particularly for alternate sites, according to suppliers.

Domestic suppliers are expected to continue to enjoy advantages in the Latin American medical products market, in spite of trends toward reduced trade barriers. Companies based in Latin America that succeed in developing products that are competitive with those from foreign suppliers from a technical perspective have captured dominant shares of the market. For example, in the ventilator market in Brazil, local suppliers control about 80% of the market, in spite of the market presence of leading global suppliers such as Drager Medical (Lubeck, Germany), Siemens Medical and Tyco/Puritan Bennett (Pembroke, Bermuda).

Intermed Equipamento Medico Hospitalar Ltda. is the leading supplier of ventilators in Brazil, with a 55% market share for self-manufactured products and an additional 8% share for sales of distributed products manufactured by the Bear Medical and Bird Products units of Thermo Electron (Waltham, Massachusetts). Other major domestic suppliers of ventilators include Oxigel Materiais Hospitalares Ind. E. Com. Ltda. and KTK. Takaoka Industria E Comercio Ltda. (both Sao Paulo).

In the related market for anesthesia machines, KTK. Takaoka claims an 85% share of the market in Brazil, with the remaining 15% of the market divided among domestic suppliers along with major global manufacturers including Siemens Medical and Datex/Ohmeda, a division of Instrumentarium (Helsinki, Finland).

Tax barriers are an important factor that has helped domestic medical equipment suppliers to dominate the market in Brazil, but the quality of domestic products as well as the level of sophistication and breadth of product offerings is also advancing. Intermed, for example, now supplies about 260 products in the respiratory care area, including 17 major equipment products, but only began manufacturing its own products about 10 years ago. Sales are growing at about 20% per year, and only about 4% of that growth is attributable to inflation. In one recent large purchase of 900 ventilators by the Brazilian government, 600 were supplied by Intermed, an indicator of the growing stature of domestic medical equipment suppliers in the Latin American market.

Opportunities in cardiology, other products

One growing segment of the medical products market in Latin America is cardiology products. While basic vital signs monitoring equipment and PTCA products comprise the majority of sales, a substantial market has developed for more advanced technologies such as telemedicine devices for ECG monitoring and ambulatory blood pressure monitoring systems. Micromed Biotechnologia Ltd. (Brasilia, Brazil) is now serving about 1,000 patients at 400 sites in Brazil with its remote ECG monitoring devices, for example, and Cardiotec Electromedicina Ltda. (Sao Paulo, Brazil) has about 80 sites in operation, after having started operations only about two years ago. Demand is particularly strong in rural areas, where a cardiologist often is not available to diagnose patients first-hand. As described by suppliers, the telecommunications infrastructure was not sufficiently developed until recently to make such applications practical. However, with the rapid adoption of the Internet and high-speed data communications in Latin America (there are 10.4 million Internet users in Brazil alone, and the government has plans to provide web access to half the population by 2005), it is now quite feasible to implement modern telemedicine technologies. In addition to established programs for telemonitoring in cardiology in Brazil, the countries of Peru, Argentina, Bolivia and Mexico all have telemedicine programs in development.

The broader market for e-health and telemedicine products and services in Latin America is at an early stage of development, as in the rest of the world. In much of the region, data communication speeds are still slower than needed for effective image-based telemedicine, although the situation is rapidly improving. Cost is the primary barrier to widespread adoption of telemedicine, limiting its use so far to only the larger hospitals. At present, about 15 major hospitals in Brazil have established telemedicine partnerships with U.S. hospitals. As an example of the type of service that has proven effective, Texas Children's Hospital (Houston, Texas) has established a telemedicine program serving 19 hospitals in Latin America that provides the capability for patients to be assessed via an audiovisual link by physicians in Houston.

Interim HomeCare is implementing another telemedicine program in Brazil in partnership with the existing Programa de Saide da Familia (PSF) family health program operated by the Brazilian government. That program is focused on preventive medicine and provides telediagnosis capabilities as well as continuing education for physicians. The initial focus of the program is on infectious disease and cardiovascular disease prevention.

Interest is also beginning to develop in the use of e-commerce in the health care arena in Latin America. Silicon Medical (Brentwood, Tennessee), a supplier of e-commerce software for medical supply procurement, has established an e-commerce procurement network for two hospital groups in Latin America, including a total of 18 hospitals. The use of e-commerce has become more desirable for hospitals as their operating margins have thinned and pressure has increased to improve efficiency. An issue in Latin America is that the telecommunications infrastructure does not support high-speed access, so Silicon developed a lower-speed version of its system that could be used by hospitals there.

Another e-commerce firm, Bionexo.com (Sao Paulo, Brazil), has established an electronic business-to-business service for health care providers in 110 hospitals that ties buyers to 140 suppliers of materials, drugs, lab products and other items. Although only on the market for about one year, Bionexo believes it is now the leading business-to-business company in the health care field in Brazil. The company can provide up to 25% savings on purchasing costs for buyers.

(In next month's issue: Patient monitoring, home health care and respiratory therapy products in Latin America.)