Transcript Medical Device Channels in Latin America

Medical Device Channels
in Latin America
John Brady
Mark Givens
Thom Murphy
Ron Sacher
Mike Zajack
Agenda
• Overview of current healthcare situation
• Overview of current distribution model
• Operating Considerations
How is Latin American
Healthcare Different?
North America
Latin America
• Resources / 10,000
• Resources / 10,000
• 27 physicians
• 96 nurses
• Infant Mortality Rate
• 7 of 1000 live births
• Annual Spending
• $4,300 per person
• 15 physicians
• 8 nurses
• Infant Mortality
• 35 of 1000 live births
• Annual Spending
• @ $200 per person
Pan American Health Organization – www.paho.com
Flood, Patricia; Latin American Medical Device
Regulations, MDDI – July 2000
Overview of LA Healthcare
Markets
• Health Status
• Young populations
• Leading causes of death
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Circulatory disease
Cancer
Respiratory Illness
Infectious and communicable diseases
• Other concerns
• Safe drinking water
• Waste / sewage concerns
• Sterilization
Healthcare System Structure
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Balance of public/private development
Most are controlled by State agencies
Focus on decentralization
Largely a two-tier system: rich & poor
Two-tier again: urban vs. rural
Population (millions)
200
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100
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Chile
Argentina
Peru
Mexico
Brazil
Health Expenditure per capita
600
500
400
300
200
100
0
Chile
Argentina
Peru
Mexico
Brazil
Medical Device Market Size,
2000, (US$4.1billion)
Chile
5%
$195m
Argentina
11% $440m
Brazil
65%
Peru
2%
$2700m
$90m
Mexico
17%
$700m
Current Medical Device Market
• Majority are imports
• Specialist agents & distributors
• Regional manufacturing/offices
necessary
• Bidding
• Decentralization emphasized
Issues with Current Medical
Device Market
• Lack of trained personnel to run
equipment or purchase appropriate
equipment
• High % of equipment not functioning
after three years
• How to transition from importer to
manufacturer exporter – sustainable
development
Typical Euro Models
• Large Country Model
• Italy, Germany, UK, France & Spain
US Corporation
US Corp Franchise
Franchise owned Subsidiary in each Country
• Single Franchise sales responsibility
• Franchise Director is Country Manager
Typical Euro Models
• Large Country Model
• Infrastructure
• Market size supports franchise based operation
• Finance
• Operations
• Human Resources
• Distribution Channel(s)
• Typically Direct
• Infrastructure allows more direct control of sales
force
Typical Euro Models
• Small Country Model
• Czech Rep, Poland, Turkey…
US Corporation
US Corp Franchise A
US Corp Franchise B
US Corp Franchise C
Corporate owned Subsidiary in each Country
• Multiple Franchise sales responsibility
• Multiple Franchise Directors report to CM
Typical Euro Models
• Small Country Model
• Infrastructure
• Corporate owned subsidiary
• Shared infrastructure with other franchises based on
smaller market size
• Distribution Channel(s)
• Typically Indirect
• Independent Representatives
• Independent Distributors
• Some Direct
• Direct Rep - Sale through Local Distributor
Latin American Model
• Corporate owned Subsidiary
• Single infrastructure “umbrella”
• Countries grouped into Regions
• Responsible for all 5 Regions P&L
Corporate Owned Latin America Subsidiary
Mexico
Brazil
C. America
Northern Zone
Southern Cone
Caribbean
Ven, Col, Equa
Chile, Arg, Urag
Latin American Model
• Regional Management
• Multiple franchise responsibility
1 Region – Southern Cone
Regional Marketing Director
Franchise A
Franchise B
Regional Sales Manager
Franchise C
LA Model – Reg Mgt. Considerations
• Distribution
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Varies by Country within Region
Localized relationships necessary
Infrastructure only supports Independent Distributorships
Multiple franchise product responsibility
Ratio Management - Manage capital/inventory
• Competition
• Local competition knockoffs
• Typically “Influential” Surgeon driven / owned
• Little patent protection from Govt. – “Keep money in Country”
• Pricing
• Cheaper local knockoffs
• rich/poor vs. high/low volume
LA Model - Reg Mgt. Considerations
• Economic variability in country mix
• Exchange rates
• Tariff’s
• Devalued currencies - export reductions
• Healthcare Structure - differ among countries
• Private healthcare for upper 5% only
• Gov’t Subsidized
• Low reimbursement - “Keep money in Country”
• Slow reimbursement process – Encourages pre payment
• Gov’t spending for local war Vs healthcare
LA Model – Reg Mgt. Strategy
• Distribution Strategy
• Invest in long term relationships
• Education is key
• Competition
• Offer total value to customer
• Surgeon education
• High Quality Product
• Reduce Hospital Liability
• Pricing strategy
• Tariffs incorporated into price
• Bundling to optimize volume discounts
• High volume @ lower prices or target rich @ high prices
LA Model - Reg Mgt. Strategy
• Economic Stability
• Budget for predicted country issues
• Place manufacturing in the country
• Protect outflow of capital & keep money in the
country
• Protection from currency exchange rates
• Healthcare Strategy
• Educate govt. on total healthcare costs
Q&A
In addition to appendices , supporting
information may be found in the slide notes
provided.
Appendix 1 - Argentina
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I. Argentina Medical Market
a.
Intro
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Movement to deregulate healthcare system to allow private companies to
compete with trade unions.
II.
Health status
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Population primarily young.
b.
Huge country – 2nd largest in South America
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Leading cause is circulatory disease
i.
Circulatory disease– 26.1% of all deaths
ii.
Respiratory – 10.7% of all deaths
iii.
Cerebrovascular – 8.4%
III.
Structure of healthcare system in Brazil
a.
Argentina spends more on healthcare than any other Latin nation
b.
Complex structure – public, social insurance and private
i.
Many sub entities leading to complicated administrative structure.
IV.
Current distribution model
a.
More lassiaz-faire than any other country.
i.
Most sold through local agents and distributors.
ii.
Common to buy expensive items direct from manufacturer.
iii.
Distributors generally cover entire country, with network of agents throughout.
iv.
Takes time to introduce new products into market: endorsements by leading
doctors/hospitals are helpful.
v.
Nine distributors in Argentina
Appendix 2 - Brazil
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Brazil Medical Market
Intro
i.
The New Constitution of 1988 created the unified health system (SUS),
guaranteeing free universal healthcare to all Brazilians
ii.
A two-tied system of healthcare due to extreme economic diversity in Brazil.
Health status
Population primarily young.
Huge country.
The health status of Brazil lags behind neighboring countries with similar incomes.
Comparable with poorer nations like Peru.
27% of population live in poverty.
Economic diversity leads to two disease profiles: chronic and degenerative diseases in
the wealthy part, and infectious and parasitic diseases in the poorer part.
Sterilization is the most common form of birth control.
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40% of married/cohabitating women have been sterilized (27% 10 years ago).
Causes of death
i.
Leading cause is circulatory disease
Heart disease– 14.9% of all deaths
Cancer – 11.9% of all deaths
Infectious and parasitic – 5.2%
Appendix 2 – Brazil (cont.)
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Structure of healthcare system in Brazil
SUS
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Focused on decentralization – giving more autonomy to state and cities in
planning local programs
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This process has been slow, marked by corruption and poor control of funds.
iii.
Private insurance covers 28% of population.
These companies maintain their own hospitals, medical centers, etc.
Localized in large population areas
Current distribution model
Imported medical devices must meet specific requirements in order to be sold.
i.
Establishment of a local manufacturing unit or local office.
ii.
Establishment of a Brazilian distributor
Import duties and VAT taxes were abolished in 1999 to ease public health
expenditures.
Cut tariffs up to 30% on some medical devices such as heart valves and pacemakers.
Public hospitals are exempt from all duties and tariffs but to import a device must
prove:
i.
Brazilian companies do not manufacture a similar product
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If it is locally manufactured, its price must be higher than the import.
Distribution is best done through developments with local agents or distributors.
i.
On-site Brazilian reps are critical for gaining access to end-users.
ii.
Personal visits to hospitals and doctors are essential.
In an effort to promote decentralization, federal hospitals can purchase their own
medical supplies. State and
locals hospitals source through the state/municpal
health secretsariats.
10 major distributors
Appendix 3 - Chile
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Chile Medical Market
Intro
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Imbalances remain in Chile healthcare system
ii.
Standard structure of public and private medical care
Health status
Population primarily young.
85% live in urban areas, 40% of population lives in Santiago.
Sanitation an issue in rural Chile.
i.
97% of all waste water (urban and rural) is released without being treated.
Causes of death
i.
Circulatory disease– 27.5% of all deaths
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Cancer – 21.8% of all deaths
iii.
Respiratory disease – 12.7%
Structure of healthcare system in Chile
Both public and private sectors regulated by Ministry of Health
Both sectors participate in health insurance
Appendix 3 – Chile (cont.)
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Current distribution model
Medical devices regulation in Chile is relatively new.
i.
Must receive a local compliance through a government agency.
Best way of entry is through a local import company.
Market is small and personal selling/connections is important.
National Health Service is leading purchaser of medical devices, but
hospitals are encouraged to purchase on their own.
Purchasing is done mostly through tender offers.
Importing into Chile is not difficult and there are few restrictions.
Chile relies highly on imported medical devices, mainly from USA.
10 major distributors
Appendix 4 - Mexico
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Mexico Medical Market
Intro
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main objective of governments health care sector reform program is to address
inadequacies of health care system.
10m people currently no access to healthcare services and additional 20m with less
than adequate access.
Health status
Causes of death
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Seen a substantial fall in mortality from communicable diseases
ii.
But a rise in mortality from chronic and degenerative diseases
Heart disease– 13.8% of all deaths
Cancer – 12.1% of all deaths
Endocrine, nutritional, immunity disorders
Structure of healthcare system in Mexico
Comprised of 3 sectors
i.
Public
ii.
Social Security
directly related to employment
iii.
Private
Localized in large population areas
Appendix 4 – Mexico (cont.)
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Current distribution model
Most equipment sold through specialist agents and distributors
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These specialize by product or brand name
Sales driven largely through technical advisors who call directly on
hospitals and doctors.
Public institutions account for 80 % of market
i.
Formalized bidding process
Private hospitals use informal process much like private US hospitals.
Financing is extremely important (especially in light of the Peso crisis in
1994)
i.
Social Security sector has piloted a new program in which
manufacturers supply devices for free in exchange for
consumables contracts.
ii.
NAFTA agreements exempt us from 10-20% duty charges plus
15% VAT
Nine major distributors, with sales ranging from $1 to $25m.
Appendix 4 – Mexico (cont.)
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Issues with current medical device market
Lack of trained personnel to run equipment and purchase appropriate
equipment
Reported 52% of imported equipment is not functioning after 3 years.
Reported 65-75% of medical equipment and devices needs replacing
Maquiladora Program - introduced in 1993
i.
Production sharing program whereby raw materials and components
get imported duty-free into Mexico and assembled in Mexican
medical devices
ii.
Exports outpaced imports of medical devices but balance was
restored in 1998.
iii.
Mexican production revolves largely around consumables and lowtech devices.
iv.
But 95% of high-tech equipment is still imported, mainly from USA
Appendix 5 - Peru
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Peru Medical Market
Intro
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In dire need of modernization.
ii.
Health indicators are poor, with sanitation and malnutrition issues prevalent in rural parts of
country.
iii.
Health expenditure remains very low.
Health status
Population primarily young.
74% of the population is urban.
Causes of death
i.
Only 58% of deaths in 1999 went reported.
ii.
Respiratory diseases are major recorded cause of death.
Respiratory disease– 18.8% of all deaths
Circulatory – 16.9% of all deaths
Infectious - 8.6%
iii.
Infectious is a major issue – malaria, cholera.
Structure of healthcare system in Peru
Fragmented between various government agencies
Small number of private hospitals
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Based in Lima
ii.
Serve a small wealthy sector
Localized in large population areas
Appendix 5 – Peru (cont.)
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Medical Device Overview
Most of the activity is based in Lima
Local agent necessary; government only issues tenders to them.
All purchases over US$75k must be put out to public tender.
12% import customs duty and 18% sales tax.
85% of market supplied through imports.
Huge demand for medical devices and equipment.
i.
Replacement of old equipment.
ii.
Providing expanded services in rural areas.
Equipment is largely at low/medium end of technology scale.
USA is leading supplier of imports to Peru.
Works Consulted
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The organ shortage: a public health crisis. What are Latin American governments
doing about it?, Santiago-Delpin EA, Transplant Proc, December 1997.
[The fragmentation of national health systems.], La fragmentacion de los sistemas
nacionales de salud., Barillas E, Rev Panam Salud Publica, March 1997.
The transfer of vaccine technology to developing countries. The Latin American
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How should resources be reallocated between physicians and nurses in Africa and
Latin America?, Vargas-Lagos V, Soc Sci Med, 1991.
Distributing and transferring medical technology. A view from Latin America and
the Caribbean., Pena-Mohr J, Int J Technol Assess Health Care 1987.
The medical "brain drain" and health priorities in Latin America., Horn JJ, Int J
Health Serv, 1977.
DIAGNOSTICS INTELLIGENCE- Corgenix Medical Corp.: entered distribution
agreements with South American companies., Chemical Business Newsbase, May
1999.
Oral Diabetes Drug to Reach Venezuela., Medical Industry Today, 1999 May.
CHILE- MEDICAL EQUIPMENT MARKET., Industry Sector Analysis, U.S. Department
of Commerce., April 1999.
Merck Latin America Agrees to Market Wound Care Products., Medical Industry
Today, January 1999.
St. Jude, Avecor Form Product Family for Foreign Sale., Medical Industry Today,
April 1997.
TROPICAL DISEASES: Four Tropical Diseases Can Be Eliminated, WHO Says.,
Infectious Disease Weekly, May 1997.
Health Policy: Investing in People’s Future, The Puzzle of Latin American Economic
Development [Ch. 12], Franko, Patrice M., 1999.
Works Consulted (cont.)
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HNP/Poverty Thematic Group of The World Bank: Socio-Economic Differences in
Health, Nutrition, and Population in Peru, Columbia, Brazil., Gwatkin, Rustein, Johnson,
Pande and Wagstaff, May 2000.
MediStat Country Pofiles: Mexico, Venezuela, Peru, Argentina, Chile, Brazil,
Espicom Business Intelligence, 2000-01.
Overview of Medical Equipment Market: Brazil., U.S. Foreign & Commercial Servce &
U.S. Department of State, 2001.
Industrial Sector Analyses (ISA): Argentina, Chile, Mexico, U.S. Foreign &
Commercial Servce & U.S. Department of State, 2001.
Emerging Market Reports: Argentina, Brazil, Chile, Mexico, HIMA, 1999.