Bbk brazil medtech oct 14

Market Report

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

OFFICIAL PROGRAMME

PARTNER

BRAZIL’S MARKET FOR MEDTECH PRODUCTS MARKET REPORT This report provides an overview of the Brazilian market for medtech products, giving an insight into the market opportunities and challenges. The Brazilian market for medical equipment has shown strong growth in the past, and continues to offer strong potential. The report is aimed at Swiss medtech companies thinking of entering the Brazilian market.

It highlights various aspects such as the market and growth perspectives in the different segments, the local industry and its competitiveness, the different client segments, the regulatory environment as well as marketing and distribution considerations, concluding with some of the main challenges that Swiss companies will encounter when setting foot in Brazil.

Date: 12-09-2014 (editorial deadline) Language: EN Number of pages: 53 Author: Manuela Merki, SwissQ Consultoria e Serviços based on OSEC report, December 2011.

Manuela Merki is a S-GE Expert for Brazil. She is specialized in industry and macroeconomic research.

Contact: contato@swissq.com.br Reports: Are you interested in market reports for other sectors and countries? Please find more reports here: www.s-ge.com/reports

Contents

1. FOREWORD ________________________________6

6. REGULATORY ENVIRONMENT _______________ 35 6.1. ANVISA _______________________________ 35

2. MARKET OVERVIEW _________________________7 2.1. Market size and growth prospects _______________ 7 2.2. Local industry and imports ___________________ 8

6.2. Company licensing________________________ 35 6.3. Product registration _______________________ 36 Classification of products ___________________ 36

2.3. Market drivers __________________________ 10

Basic documentation for product registration______ 37

Demographic ageing ______________________ 10

Timelines ______________________________ 37

Public health policy ________________________ 11 Private health insurance _____________________ 11 Growing number of doctors ___________________ 11

6.4. GMP certification ________________________ 37 6.5. Other certificates _________________________ 38

Medical tourism _________________________ 13

7. DISTRIBUTION _____________________________ 39

2.4. Market segments _________________________ 13

7.1. Options _______________________________ 39

Consumables ___________________________ 14

Hosting company + importer/distributor ________ 39

Diagnostic equipment and materials ____________ 15

License-holding importer/distributor ___________ 39

Dental products __________________________ 16

Local manufacturer _______________________ 40

Orthopedic products ______________________ 18

Own subsidiary __________________________ 40

Cardiovascular devices _____________________ 19

7.2. Selection of distributors ____________________ 40

Ophthalmic devices _______________________ 19

Regulatory requirements on distributors _________ 40

3. MANUFACTURERS IN BRAZIL ________________21 3.1. Local industry and its competitiveness __________ 21 3.2. Leading Brazilian companies _________________ 22

Sales force _____________________________ 40 Access to market / Network / Reputation ________ 41 Participation at trade fairs and congresses ________ 41 After-sales services _______________________ 41

3.3. Multinational companies ___________________ 24

Strategic convergence ______________________ 41

4. BRAZIL’S HEALTHCARE SYSTEM _____________26

7.3. Partnership agreements ____________________ 41

4.1. The public system (SUS) ____________________ 27

8. MARKETING _______________________________ 42

4.2. Private healthcare ________________________ 28

8.1. General remarks _________________________ 42

5. HOSPITALS AND DIAGNOSTIC LABORATORIES_30

8.2. Trade fairs _____________________________ 42

5.1. Hospitals ______________________________ 30 5.2. Diagnostic laboratories _____________________ 32 5.3. Public tendering _________________________ 33 5.4. Avoiding Pitfalls _________________________ 34

Hospitalar _____________________________ 43 CIOSP 43 Other relevant fairs _______________________ 44 8.3. Other promotion channels __________________ 44

9. SUMMARY AND CONCLUSION _______________ 46

10. APPENDIX ________________________________48 10.1. Imports of medical devices (detailed table) _______ 48 10.2. Additional information ____________________ 50 Major events and publications ________________ 50 Regulatory agencies _______________________ 50 Industry associations ______________________ 50 Selected universities _______________________ 51 10.3. ANVISA registration timelines _______________ 52

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4

Figures

Figure 1: Brazilian medical device market ...........................................................................................................................................7 Figure 2: Medical device markets in comparison ............................................................................................................................... 8 Figure 3: Health expenditure per capita ............................................................................................................................................. 8 Figure 4: Medical device imports and exports .................................................................................................................................... 9 Figure 5: Age pyramid, 2013 and 2040 ..............................................................................................................................................10 Figure 6: Medical practitioners .......................................................................................................................................................... 12 Figure 7: Medical practitioners by specialties .................................................................................................................................... 12 Figure 8: Brazilian medical device market and imports .................................................................................................................... 13 Figure 9: Growth per segment ............................................................................................................................................................ 14 Figure 10: Consumables market ......................................................................................................................................................... 14 Figure 11: In vitro diagnostics market ................................................................................................................................................ 15 Figure 12: Imports selected products in vitro segment ..................................................................................................................... 15 Figure 13: Diagnostic imaging market ............................................................................................................................................... 15 Figure 14: MRI and CT units in selected countries ............................................................................................................................ 16 Figure 15: Diagnostic imaging devices, 2006 and 2012 .................................................................................................................... 16 Figure 16: Dentists in selected countries ............................................................................................................................................ 17 Figure 17: Dental products market ..................................................................................................................................................... 17 Figure 18: Orthopedic and prosthetic devices market .......................................................................................................................18 Figure 19: Regional distribution of orthopedists ...............................................................................................................................18 Figure 20: Cardiovascular devices market ......................................................................................................................................... 19 Figure 21: Pacemakers ........................................................................................................................................................................ 19 Figure 22: Ophthalmic market .......................................................................................................................................................... 20 Figure 23: Ophthalmic devices market and imports ........................................................................................................................ 20 Figure 24: Private health plan coverage ............................................................................................................................................ 26 Figure 25: Customers of local medtech manufacturers .................................................................................................................... 26 Figure 26: Beneficiaries of medical and dental health plans............................................................................................................ 28 Figure 27: Leading health insurers .................................................................................................................................................... 29 Figure 28: Hospitals and clinics in Brazil ......................................................................................................................................... 30 Figure 29: Structure of expenditure of private hospitals................................................................................................................... 31 Figure 30: Leading diagnostic service providers .............................................................................................................................. 32 Figure 31: Evolution of expenditure on diagnostic services ............................................................................................................. 33 Figure 32: Strengths, weaknesses, opportunities and threats (SWOT) of the Brazilian medtech market ..................................... 46

1. Foreword With its 200 million inhabitants, Brazil represents the largest market within Latin America and offers unique potential for health related products and services. The demand for medtech in Brazil has been continuously rising due to a growing middle class, the demographic change of the society as well as a higher disposable income and improved treatment options throughout the whole country. In parallel, large numbers of private hospitals and their increased investments in new technology and equipment have attracted many international and local players to serve this market, taking advantage of the urbanization of the society and their presence in the mega cities of the country offering world class medical treatments. In parallel health consciousness as well as the strive for wellness and beauty have introduced new medical treatments, enabling international players to position themselves in this multibillion dollar market, where consumers are ready to spend significant income on imported and high quality treatment options. These developments have made Brazil an attractive destination to Swiss medical technology companies. Exports from Switzerland to Brazil for this sector have been growing strongly in the last ten years (2005: 29 million CHF) reaching a total of 122 million CHF in 2013.

The update of this market study which was initially published in 2011, shall give new insights into market drivers, recent changes in the regulatory environment and therefore support Swiss exporting companies in the decision making process when evaluating the Brazilian market on its potential and attractiveness.

At first sight, the market seems to be enormous in potential and size, however only few Swiss exporting companies have been able to tap the full potential of the market and successfully expand locally. The main reasons for their success lie in the right market entry strategy, forming strategic alliances and understanding the market dynamics such as its fast changing regulatory environment and corporate laws. At the same time, successful companies have taken enough time in their implementation process and have used setbacks to adapt their market strategies, shaping these to be agile and flexible. Risk management and adversity reduction has been a central element for these companies paired by great upfront investments in order to build up a market with their local partner or own structure. At the same time, Swiss companies active in this market have understood that they need to adapt their high quality and high price products to meet local market demands and have come up with product adaptations and developments specifically designed to meet the Brazilian market demands. Finally the Swiss enterprises have considered great initial upfront investments and allocated extensive timeframes in order to see their business develop slowly in this competitive and yet protected market. The report reflects some of their entry models and gives valuable hints on potential setbacks and challenges. In addition this report gives first insights into local competitors, subsectors of interest as well as guidance on distribution options and trade fairs of interest, any new company entering this market may benefit from.

With the help of Switzerland Global Enterprise, the Swiss Business Hub Brazil and its associated partners such as the Swiss – Brazilian Chamber of Commerce, a great number of Swiss companies have been able to evaluate the right market strategies and possible partners in order to reduce errors and learn from a global and international network of experts which supported their internationalization endeavors to Brazil. Some of these experiences are reflected in this updated market study and shall contribute to any market entry planning motivating Swiss small and medium size companies to consider Brazil as their next market.

Thomas Foerst Director Swiss Business Hub Brazil São Paulo, September 2014 BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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Chris Watts Regional Director Americas Zurich, September 2014

2. Market overview 2.1. MARKET SIZE AND GROWTH PROSPECTS Brazil has the largest economy and medical devices market in Latin America. Its 200 million people make up for 2.8% of the world population. The Brazilian medical devices market was valued at US$ 5.9 billion in 2013.

Per capita spending is around US$ 30 per year. This is below the average per capita spending in Europe (around EUR 195) but considerably higher than the average expenditure in many other emerging markets (e.g. China, India or Indonesia).

According to Espicom Business Intelligence, growth expectations continue high at 13.2% (CAGR, in US$ terms) for the 2013-2018 period. The unfavorable economic situation and uncertainties with regard to the future economic and social policy will however restrain growth for this sector as well. 2015 is supposed to be more favorable in terms of growth, but macroeconomic challenges such as high inflation, exchange rate volatility, high interest rates and high levels of public and private debt will not be resolved quickly. Brazil is likely to remain one of the slowest growing Latin American economies over the next five years, whereas medical devices may outperform the economy manifold, experiencing however slower short-term growth rates.

The growth prospects for the medical device market are sustained essentially by specific market drivers for the health care sector – both on the demand and supply side (see chapter 2.3). General economic performance in the last decade involved a drop in the unemployment rate and an increase in average income. This results in a higher demand for health care services and an increasing awareness for quality. As a middle-income country, Brazil has a GDP per capita comparable to Eastern European countries, but with a highly uneven income distribution (both in social and regional terms). This reflects that there is (a) a rich elite and (b) there is still a huge demand in waiting.

Figure 1: Brazilian medical device market

Annual growth rate (right-hand scale)

Medical device market (US$ million)

Linear trend 12

48%

10

40%

8

32%

6

24%

4

16%

2

8%

0

0% 2009

2010

2011

Source: Espicom Business Intelligence; * = forecast

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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2012

2013

2014*

2015*

2016*

2017*

2018*

Even though Brazil ranks among the major emerging economies, its medical equipment market lags behind developed markets of much smaller countries like Italy or Switzerland. Also with regard to health expenditures in general, Brazil stand up the comparison with other emerging markets, but room for development persists.

Swiss exporters have also perceived this fact, as they consider Brazil to have attractive growth potential for them. Highest expenditures in Brazil occur in big cities, such as São Paulo and Rio de Janeiro; however, regional markets outside the metropolitan areas have been gaining importance recently.

Figure 2: Medical device markets in comparison

Figure 3: Health expenditure per capita

Japan Germany France Italy UK China Spain Canada Switzerland Brazil Mexico India Turkey Argentina

Switzerland Canada Germany France Japan UK Spain Italy Argentina Turkey Brazil Mexico China India

0

5

10

15

20

Source: WHO / Espicom Business Intelligence, 2009 (US$ billion)

25

0

2

4

6

8

Source: WHO (PPP, constant 2005 international $), 2012

The Brazilian market bears its difficulties. Barriers to market entry are high for any industry. In the IFC / World Bank – Ease of Doing Business indicator Brazil ranks 116 of 189, behind the regional average for Latin America & the Caribbean. Main difficulties are the high level of bureaucracy and the complex tax system.

Due to specific regulations for health care products, the medical devices market faces additional hurdles. Advice and support from local partners is indispensable (see chapter 6 and 7) and a decisive factor for success.

2.2. LOCAL INDUSTRY AND IMPORTS Brazil has a solid medical equipment industry, made up of local manufacturers as well as international companies that produce mainly for the domestic market. Despite the existence of a local medtech industry (see chapter 3), foreign suppliers of high-tech equipment and devices encounter good business opportunities in Brazil.

According to the Brazilian trade statistics, the country imported US$ 3.0 billion worth of medtech equipment and devices in 2013. The market share of imports varies depending on the segment (see chapter 2.3); it is slightly above 50% for the overall market.

The reduction of the trade deficit in medical devices and pharmaceuticals is a declared objective of the Brazilian government. Intensive promotion of domestic manufacturing through reduced labor and electricity costs, support of investments (PROCIS), but also indirectly through attractive credit lines by the Brazilian development bank BNDES and/or the preference of domestic medical technology in public tenders. Important multinational suppliers are therefore shifting to assemble their products locally also enhancing therewith their market proximity and cost structures.

Imports of medical devices registered a CAGR of 11.4% between 2008 and 2013 years (see Figure 4). Slower growth in recent years may be explained partially by the shift towards local production sites as well as protectionist policies, paired by the ongoing devaluation of the Brazilian Real.

The United States (US) is Brazil’s most important supplier of medical devices, followed by Germany, China, Switzerland and Japan. Brazilian statistics reflected medical device imports amounting to US$ 150 million from Switzerland in 2013, equivalent to 5% of the total import volume. Switzerland is the leading supplier of BRAZIL’S MARKET FOR MEDTECH PRODUCTS

8

dental instruments and fittings, and the Swiss medtech industry also holds strong positions in the orthopedic and patient aids market segments.

Import duties for medtech products range from 0-20%, depending on the product and the existence of domestic competitors. In 2011, the average Common External Tariff (CET) was 11%. In addition to that, importers may be required to pay IPI (Tax on Industrial Products), PIS and COFINS (social contributions), as well as ICMS (Tax on the Circulation of Goods and Services) levied by the different states. Many states (amongst them São Paulo and Paraná) exempt the imports of medical equipment from ICMS, others may follow to do so as well.1 Figure 4: Medical device imports and exports

Imports (yoy, right-hand scale)

Exports (yoy, right-hand scale)

Imports (US$ million)

Exports (US$ million)

3'500

50%

3'000

40%

2'500

30%

2'000

20%

1'500

10%

1'000

0%

500

-10%

0

-20% 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: MDIC / ALICEWeb

Exports from Brazil to international markets tend to be low. Export volumes have developed slowly before the economic crisis but showed again weaker growth rates in 2012 and 2013 despite the devaluation of the Brazilian Real. Despite of Brazil being a member of the MERCOSUR trade block, exports of medical technology made in Brazil has not been able to gain significant relevance in the region. At the same time, there is de facto no free movement of imported goods within MERCOSUR as member countries may levy taxes on such goods. The fact that Brazil has no significant trade agreement with strong medtech related economies, influences the Brazilian medtech ecosystem negatively as its innovation grade and the participation in global value chains have been lagging behind. Negotiations for new agreements with important trade blocks are foreseen in the next years.

Free-trade initiatives with the European Union and an intensified relationship with other BRICS-countries, especially with China, recently gained new momentum and may influence the aforementioned competitiveness significantly, once concluded.

1

See agreement (convênio) ICMS 05/98.

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2.3. MARKET DRIVERS The main drivers for the Brazilian medical technology market are linked to demographic trends, governmental health policy, increased income and improved access to private health insurance, the growing number of doctors, and Brazil’s attractiveness for medical tourism. At the same time medical education and increased collaboration on the academic level, have helped the industry landscape to gain increased knowledge about new developments, innovative treatment standards and drugs.

Demographic ageing Life expectancy at birth in Brazil has increased by more than ten years over the last decade, and now stands at an average of 74.2 years (IBGE, 2013). Today, 7.4% of the Brazilian population is aged 65 or more. This is still a low ratio compared to developed countries, but nevertheless represents 14.9 million people. The number of people over 65 years of age is expected to exceed 40 million people until 2040. The fertility rate per woman has dropped below the natural reproduction level (2013: 1.65 births per woman, 2000: 2.4 births per woman). The country therefore enjoys a very advantageous population structure over the next few decades (see Figure 5) and is likely to use this “window of opportunity” to build a welfare state.

Figure 5: Age pyramid, 2013 and 2040

90+ 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 Source: IBGE

The ageing trend is accompanied by a change of the epidemiological profile of Brazil’s population: Infectious and parasitic diseases (which are more easily curable) and deaths for external causes are receding, whereas chronic-degenerative diseases are on the rise. Non-communicable diseases (as strokes and heart attacks, cancer, lung disease and diabetes) are expected to account for 74% of deaths in 2013. The National Cancer Institute projects 576’000 new cases of cancer in 2014.

Company Testimonial – Sonova do Brasil – Produtos Audiológicos Ltda.: “Brasil is a promising market for Sonova. Today, only one in 20 people with hearing loss, uses hearing aids. This rate is four times lower than the average in Europe or North America, offering continuous growth potential for us. With our innovative products and solutions, we optimally cover the diverse needs of the Brazilian market. The Brazilian opportunities present unique challenges: the aspirations of millions of new customers can only be met through new approaches and continuous innovation – in what we make, how we make it and how we sell it.” M. Zavagli CEO Sonova do Brasil – Productos Audiológicos Ltda.

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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Public health policy In the 1988 Constitution, Brazilians were granted a right to public health care, free of charge. While the public health system (Sistema Único de Saúde SUS – see also chapter 4.1) remains critically underfunded, popular and political pressure is building up for improvements, and doctors ask for replacements of obsolete equipment.

Individual patients even went to court and successfully sued the government to obtain innovative treatments.

Already, the National Economic and Social Development Bank (BNDES) has considerably expanded its credit lines for the health sector, to fund construction and modernization projects by public hospitals and non-profit institutions; even private hospitals are eligible under certain conditions.

Problems of mismanagement and bad resource allocation in the public healthcare system are becoming increasingly visible and discussed. In June 2013, the dissatisfaction – not only with health care but public services as a whole – took people to the streets. The protesters demanded political changes, demanding more transparency, and economic improvements, i.e. more public investment. In response, the federal government launched the “Mais Médicos” initiative to reduce the lack of professionals in rural and peripheral regions by importing medical professionals from other countries in South America.

Private health insurance Private health care in Brazil is principally reserved for high income households. Often private health plans are partly financed by the employer as a fringe benefit, and include not only the employee but also its family. The increase in formal jobs boosted by Brazil’s growing economy stimulated therefore private health care coverage and finally the consumption of health care services in general.

Out of a population of 200 million, in 2013 there are 50.3 million health plan beneficiaries, 19 million more than in 2001 (see chapter 4.2). People with health plans or insurance cover consume significantly more health care services than those without. Studies point to an average 40% (up to 60% in case of inpatient care) higher consumption.

Since health plan beneficiaries are entitled to using private hospitals, clinics and laboratories, their demand is a driving force for investments in high-quality facilities and state-of-the-art medical technology. The increasing number of patients covered by health plans also explains the numerous expansion projects by private hospitals.

Growing number of doctors The number of medical practitioners has grown exponentially over the last few decades (see Figure 6). There were 59’000 medical practitioners in 1970, whereas in 2013 they accounted for 388’000. At the same time the density of doctors has sharply increased from 1.1 doctors for every 1’000 inhabitants in 1980, up to 2 doctors per 1’000 inhabitants in 2012. About 16’000 medical practitioners (mean value 2007-2011) enter the market every year. About 9’000 resign or retire, reflecting a surplus in these professionals every year.

According to a long-term forecast by the federal council of medicine (CFM), the number of professionals will reach 500’000 in 2020, a rate of 2.41 physicians/1’000 inhabitants. Until 2050 the number shall even rise up to more than 900’000 medical practitioners and a density of 4.1/1’000 inhabitants.

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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Figure 6: Medical practitioners

400'000 350'000 300'000 250'000 200'000 150'000 100'000 50'000 0 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2013 Source: CFM

It is understood, that medical practitioners not only need to set up and equip their own practices; they are also able to influence demand for all kind of medical services in a major way. Brazilian doctors are generally keen to adopt new technologies, even though they face significant budget restrictions. Many renowned opinion-leaders have studied abroad and attend international congresses. They often work at different (public and private) institutions, which also contributes to spread innovation in both sectors.

General practitioners (46%) are slightly outnumbered by specialists (54%), see Figure 7. Specialists are concentrated in the richer South and Southeast regions of Brazil.

Figure 7: Medical practitioners by specialties

General Practitioners

180’136

Psychiatrists

7'558

Specialists

207'879

Dermatologists

5'930

Pediatrics

30'112

Otorhinolaryngologists

4'976

Gynecologists

25'032

Plastic Surgeons

4'818

General Surgeons

22'276

Intensive Medicine Specialists

4'275

Internists

21'890

Urologists

4'073

Anesthesiologists

18'236

Gastroenterologists

3'481

Cardiologists

11'568

Endocrinologists

3'466

Orthopedists / Traumatologists

10'504

Neurologists

3'212

Ophthalmologists

9'862

Nephrologists

2'885

Radiologists / Diagnostic Imaging Specialists

7'925

Neurosurgeon

2'428

Source: CFM, 2013

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

12

Medical tourism Brazil is well known as a medical tourism destination, mainly for plastic surgery, but also for procedures in the areas of dentistry, orthopedics, sports medicine, cardiology and others. In São Paulo, Rio de Janeiro and Recife, the top private hospitals have set up international relations departments with bilingual professionals prepared to receive international patients, which expect world-class treatment. Medical tourism depends to a great extent on prices; exchange rate fluctuations therefore may affect demand significantly. Reliable data on medical tourism is not available. Estimates rely on industry sources which are usually biased and inaccurate.

Finally, in a country of continental dimensions like Brazil, with patients sometimes living hundreds of kilometers from where specialist care is available, there may be a good rationale for telemedicine and online platforms providing such services.

2.4. MARKET SEGMENTS In the Brazilian medical devices market, consumables represent the largest segment with 24.1% of the market and estimated total revenues of US$ 1’428 million in 2013. Diagnostic imaging apparatus is the second largest market segment with US$ 1’078 million (18.2% of the Brazilian medical device market), followed by orthopedic and prosthetic devices (US$ 858 million or 14.5%), patient aids (US$ 716 million or 12.1%) and dental products (US$ 442 million, 7.5%).

Figure 8: Brazilian medical device market and imports

MARKET VOLUME 2013 Consumables 24.1%

Others 23.6% 21.3%

18.8%

IMPORTS 2013 17.6%

Patient Aids 12.1%

12.3%

Orthopaedics & Prosthetics 14.5%

26.8%

Diagnostic Imaging 18.2%

3.3%

Dental Products 7.5%

Source: Espicom Business Intelligence, MDIC / ALICEWeb

The Brazilian industry has different levels of competitiveness in the respective segments (see chapter 3). As a consequence – influenced also by different levels of import duties and differences in the internationalization strategy of the most important providers – the composition of imports deviates from the general market composition. Figure 8 reflects the share of imports (inner ring) and the respective market volume (outer ring) of the medical device market. The graph suggests that opportunities for new market entrants may lie in the area of diagnostic devices as well as patent aids.

Figure 9 shows the recent development of the main segments of the Brazilian medtech market. Dental products have grown most with a CAGR of 16.7% between 2008-2013, stimulated in particular by a strong increase in private dental plan coverage. Also orthopedic and prosthetic devices as well as the consumables have outgrown the total market in the past years. The diagnostic imaging equipment segment grew lowest and was the most affected by the 2009 downturn.

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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Imports have followed the same trend, with particularly strong growth recorded for dental and orthopedic products as well as the consumables segments. Also the category of “other” medical device that include medical, surgical and dental furniture, medical and surgical sterilizers, ophthalmic instruments and appliances, and other instruments and appliances, grew well above the average rate.

Figure 9: Growth per segment

220

Consumables

200

Diagnostic Imaging

180

Dental Products

160

Orthopedics and Proesthetics Patient Aids

140 Others 120

Total

100 2008

2009

2010

2011

2012

2013

Source: Espicom Business Intelligence, 2008 = 100

In the following subsections, this report presents more detailed information about the different market segments.

Consumables The category of hospital consumables includes common articles used during medical practices, such as wound care and closure devices, surgical gloves, syringes, needles, catheters, cotton, sealants, glues, sutures, staples, anti-adhesion, and tapes. This segment is dominated by domestic suppliers (including the subsidiaries of multinational companies), with imports representing about 40% of demand in 2013.

Figure 10: Consumables market

MARKET VOLUME 2013, US$ million

CAGR 2008-2013

Wound care & suturing materials

625.4

14.6%

Syringes, needles & catheters

724.0

16.2%

78.5

12.0%

1’427.9

15.2%

Others Total Source: Espicom Business Intelligence

CAGR was above 15% between 2008-2013. Future growth is projected to be slightly lower at a CAGR of 13.9% for the total segment of consumables, with syringes, needles and catheters and ostomy products outperforming the other categories.

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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Important local producers include Becton Dickinson (www.bd.com/brasil, needles and syringes), Johnson & Johnson (www.jnjbrasil.com.br, sutures and needles), Covidien (www.covidien.com.br, suture materials), Nipro Medicals (www.nipromedical.com.br, needles and catheters) and Cremer (www.cremer.com.br, textile and adhesive products).

Diagnostic equipment and materials Like elsewhere, there is a growing awareness of the benefits for diagnostic services in Brazil’s medical community. Demand for instruments, analyzers, tests, markers and reagents for use in vitro diagnostics, but also for diagnostic imaging devices, is on the rise. For the next few years, forecasters expect a CAGR around 10% – diagnostic imaging slightly more (around 12%), in vitro slightly less.

The Brazilian market for in vitro diagnostics was estimated at US$ 950 million in 2011, the second largest among the emerging market economies, behind China. The Brazilian market is primarily served by imports.

According to the Brazilian Chamber of Laboratory Diagnostics (CBDL), the vast majority of the Brazilian market in vitro diagnostics is related to clinical laboratories (88%), blood banks make up for about 11% and POC (point-of-care) testing only for 1%. POC tests have a huge growth potential however.

Figure 11: In vitro diagnostics market

Microbiology Culture 8%

Histology and Cytology 3%

Figure 12: Imports selected products in vitro segment

IMPORTS 2012 US$ million

Genetic Testing 2%

Infectious Immunology 12% Hematology 13%

Source: Global Data, 2009

Immuno Chemistry 32%

Clinical Chemistry 30%

CAGR 2008-12

Reagents

333

11.6%

Instruments and apparatus

146

6.9%

Chromatographs

67

6.5%

Photo-/Spectrophotometers

80

9.8%

Calorimeters

15

-3.1%

640

9.1%

Total Source: BNDES (2013), Aliceweb / MDIC

The diagnostic imaging market is relatively volatile due to high unit values. It has suffered a dip in 2009 but recovered quickly in 2010. In 2012 electrodiagnostic and radiation apparatus were down again but recovered strongly in 2013.

Imports in this segment amounted to US$ 807.6 million in 2013 (equivalent to 75% of market volume). Reliance on imports is continuously decreasing as the leading suppliers (Philips and GE Healthcare) have built up local production and/or acquired local producers.

Figure 13: Diagnostic imaging market

MARKET VOLUME 2013, US$ million

CAGR 2008-2013

Electrodiagnostic apparatus

543.9

7.6%

Radiation apparatus

239.2

2.3%

Imaging parts & accessories

295.0

7.8%

1’078.0

6.3%

Total Source: Espicom Business Intelligence BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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Brazil is relatively well equipped with diagnostic imaging equipment. With 7.2 MRI scanners, 14.6 CT units per million inhabitants, the coverage is comparable to mature markets such as France or Canada and well in front of other Latin American countries, e.g. Chile or Mexico.

Figure 14: MRI and CT units in selected countries

MRI 2013*

Figure 15: Diagnostic imaging devices, 2006 and 2012

CT UNITS 2013*

USA

34.5

40.9

South Korea

20.0

35.4

Germany

10.8

18.3

Brazil

7.2

14.6

Canada

8.0

13.8

France

10.1

13.5

Chile

4.4

12.6

Mexico

1.4

3.7

Source: WHO – Global Health Observatory, OECD Health Statistics 2013, Espicom Business Intelligence * or most recent available year, per million inhabitants

X-Ray Ultrasound 2012 Mammography

2006

CT MRI 0

10 20 30 40 50 60 70

Source: Ministry of Health / Datasus, in 1’000

The country may not be considered a fast adopter of the most recent technological advances. Growing demand for higher quality healthcare is encouraging hospitals to upgrade and replace their facilities. But while the private sector is sensitive to new developments, the public sector is slow to embrace them.

Over the past few years, the number of diagnostic imaging devices has grown significantly, according to the Ministry of Health’s official database. Figure 15 shows the numbers of such equipment in operation. According to a study by Brazil’s Statistical Office, modern diagnostic equipment is usually first introduced in the big cities of the South and Southeast (São Paulo, Rio de Janeiro, Belo Horizonte, Curitiba and Porto Alegre) and the federal district (Brasilia), and then disseminate rather slowly to the North and Northeast regions.

Company Testimonial – Biosafe Latin America: “The Brazilian government has made major investments in public programs that will use Biosafe’s technology. In general we consider the rising health care spending and the resulting investments as interesting opportunity both in the public and private sector as well as research institutions which are looking for new technologies”. F. Spiandorello CEO Biosafe Latin America Brazil.

Dental products Brazil has one of the highest numbers of dentists in the world. With 260’034 dentists, Brazil outnumbers many other countries. Looking at dentist density makes clear, that there is still considerable growth potential for the future. The number of dentists has grown in recent years due to an expansion of dental schools in Brazil (mostly private institutions, some with questionable training quality). The federal council of odontology (Conselho Federal de Odontologia) registers currently 41’719 dental care providing entities and 3’100 dental laboratories.

Brazil has a large program for free public dental care – the Smiling Brazil (Brasil Sorridente) program, launched in 2004. Since then R$ 7 billion have been invested. 1’013 centers for oral health were created and provided dental treatment for nearly 80 million persons.

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Figure 16: Dentists in selected countries

DENTISTS

(YEAR)*

Brazil

260’034

(2014)

India

120'897

(2012)

Japan

101'576

(2010)

Germany

65'502

(2011)

France

41'740

(2012)

4'123

(2011)

Switzerland

Source: WHO – Global Health Observatory, * most recent available year

The market for dental products was estimated at US$ 442 million in 2013 and has been the fastest growing segment of the Brazilian medtech market with a CAGR of 16.7% in the last few years. It is now expected to grow at a slower pace (CAGR estimate by Espicom Business Intelligence for 2013-1018: 11.8%).

Within the dental products market, capital goods will grow less than instruments and supplies. The segment of dental instruments is supposed to grow fastest, at a CAGR of 13.3%, until 2018.

Figure 17: Dental products market

MARKET VOLUME 2013, US$ million Capital equipment

CAGR 2008-2013

88.2

10.7%

Dental chairs and drills

50.4

6.5%

Dental radiology equipment

37.9

18.4%

Instruments & supplies

353.8

18.5%

Dental instruments

150.5

19.7%

63.8

8.7%

139.5

23.7%

442.0

16.7%

Dental cements Teeth, crowns and fittings

Total Source: Espicom Business Intelligence

Brazil is a major dental equipment producer, with several domestic companies offering a fairly complete range of equipment: dental chairs, dental instruments, artificial teeth and dental prostheses, dental cements and other dental preparations. Due to the strong local production, imports account for only about 20% of the total market for dental products, rising at 35% for dental cements. Switzerland is the major supplier with a share of 29% in imports in 2013, followed by Germany (24%). Opportunities may be found in the supply of the local players with new innovative products and technologies, which help them upgrade their current technology.

Company Testimonial – Geistlich Pharma Do Brazil: “Brazil with its more than 260 thousand dentists and a population concerned with aesthetic factors and oral health is attractive to us. The population and the professionals here are connected with what is best in the international dental market. The local dentistry has a high reputation in the world and a large number of world-class professionals. Our strategy aims at winning more premium range customers through the dissemination of scientific evidence, clinical practice and education excellence ”. P. Sorensen Managing Director Geistlich Pharma do Brazil

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Orthopedic products Brazil’s orthopedic and prosthetic device market has reflected strong growth in the recent past (CAGR 20082013: 15.8%), and the market is set to grow only slightly slower in the years to come. In 2013, the orthopedics and prosthetics market was estimated to have reached US$ 858 million.

Figure 18: Orthopedic and prosthetic devices market

MARKET VOLUME 2013, US$ million

CAGR 2008-2013

IMPORTS 2013, US$ million

CAGR 2008-2013

Splints / other fracture appliances

290.8

13.9%

154.7

13.6%

Artificial joints

171.2

13.6%

69.1

14.4%

Other artificial body parts

396.1

18.4%

149.1

14.8%

Total

858.0

15.8%

372.7

14.2%

Source: Espicom Business Intelligence, MDIC / ALICEWeb

The orthopedic and prosthetic segment represents about 14.5% of the overall medtech market, and has a relatively competitive local production. This has not prevented imports from growing as well, and from holding 43.4% of the market volume in 2013. Leading foreign supplier is the US. Switzerland is an important trade partner especially for fixation devices.

As stated above, Brazil currently has 10’504 orthopedists and traumatologists. Figure 19 shows their distribution across the country in 2013. The pattern is typical for other specialists as well, who generally tend to settle in economic centers with specialist training institutes, reference hospitals, and a private clientele. The State of São Paulo (which concentrates 21.6% of Brazil’s population) has 3’143 orthopedists (29.9%), Minas Gerais comes second with 1’127 practitioners, followed by the States of Rio de Janeiro (1’121), Rio Grande do Sul (816) and Paraná (780).

Figure 19: Regional distribution of orthopedists

Number of orthopedists / traumatologists

Source: CFM BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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Cardiovascular devices Cardiovascular devices are used in treating diseases related to the heart and the circulatory system. The cardiovascular market includes devices used in interventional cardiology, peripheral vascular devices, cardiac rhythm management, cardiac surgery, cardiac assist devices, cardiac prosthetic devices and devices used to monitor cardiac events.

The market for cardiovascular devices in Brazil generated overall revenues of US$ 570 million in 2012. More than 100’000 cardiovascular surgeries are made every year. The category of cardiac rhythm management (comprising pacemakers, implantable and external defibrillators) makes up for the largest part of the revenue.

The fastest-growing category has been that of interventional cardiology (i.e. devices used to diagnose and treat diseases related to the coronary artery, using minimally invasive procedures, coronary stents, cardiac catheters, PTA balloons, guide wires and closure devices).

Figure 20: Cardiovascular devices market

Surgery 6% Electrophysiology 7%

Monitoring and Diagnostic 3%

Figure 21: Pacemakers

Prosthetic Devices 9% Peripheral Vascular Devices 9%

VOLUME 2013 US$ MIO

CAGR 2008-13

Market volume

52.8

8.0

Imports

48.2

7.1

Interventional Cardiology 30%

Cardiac Rhythm Management 36%

Source: Espicom Business Intelligence, MDIC / ALICEWeb (Pacemakers, except parts & accessories)

Source: Global Data, 2009

Local production is underdeveloped – especially in the case of pacemakers, but government initiatives try to boost domestic production. In December 2013, productive development partnerships (PDP) for the production of key products (pacemakers and stents) for the SUS were initiated by the Ministry of Healthcare.

Imports of cardiovascular implants make up more than 40% of the market. The major supplier is the US; Germany is leading supplier for pacemakers.

Ophthalmic devices Ophthalmic devices are those used for vision correction or in ophthalmic diagnostic procedures. Ophthalmic instruments have shown tremendous growth since 2008 with CAGR 2008-2013 reaching as much as 25.5%.

Strong growth is supposed to continue. Espicom Business Intelligence estimates CAGR until 2018 at 26%.

Imports developed slightly slower than the total market with a CAGR of 22.7% in the last 5 years.

The largest segment within the ophthalmic devices segment is the vision care segment (comprising contact lenses and spectacles lenses). The market leaders are Essilor, Johnson & Johnson and Ciba. Refractive surgery devices is the fastest growing segment. Abbott, Alcon/Novartis and Nidek are the leading suppliers. In the ophthalmic diagnostic equipment segment, the market leaders are Nidek, Carl Zeiss and Topcon.

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Figure 22: Ophthalmic market

Cataract Surgery Devices 4%

Refractive Surgery Devices 2%

Figure 23: Ophthalmic devices market and imports

VOLUME 2013 US$ MIO.

Ophtalmic Diagnostic Equipment 2%

CAGR 2008-2013

Market volume

83.9

25.5%

Imports

59.7

22.7%

8.6

22.0%

51.1

22.8

Binocular microscopes, ophthalmic surgery utilities Other instruments Vision Care 92%

and equipment for ophthalmology Source: Espicom Business Intelligence, MDIC/ALICEWeb

Source: Global Data, 2009

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3. Manufacturers in Brazil 3.1. LOCAL INDUSTRY AND ITS COMPETITIVENESS Brazil’s medtech industry is dominated by the subsidiaries of big multinational companies; but among the 450-500 domestic manufacturers, there are also independent national players, most of them small and medium sized (sales < R$ 50 million). The general trend towards industry consolidation also holds for the Brazilian medtech sector. The industry employs a total of 58’000 people and is heavily concentrated in the State of São Paulo and the rest of the Southeast Region, where about 80% of the companies are located. According to the latest market analysis2 presented by ABIMO during this year MD&M Medical Manufacturing show, from the total of 3’670 companies active in this sector 38% are located in the State of São Paulo, followed by 13% active in Minas Gerais (Medtech Cluster), Paraná and Rio Grande do Sul. The majority of these companies are middle size companies (turnover ranging between R$ 2.4 to 6 million). ABIMO furthermore collected the main threats and challenges CEO’s of Brazilian companies consider for running their business. These include the challenge to deal with high tax burdens, raising inflation, currency fluctuations, low scale production capacity and the missing innovation grade as well as the access to international global value chains and research programs.

As the Brazilian industry in general, the local medtech companies have a strong focus on the domestic market.

Exports are increasingly important for local producers but accounted for less than 20% for the medtech industry as a whole in 2013. Exports mainly go to the Latin American and other emerging markets, but also to the US and selectively to the European Union.

The local manufacturers of medical, hospital, dental and laboratory consumables and devices are organized in the Brazilian Medical Device Manufacturers Association (ABIMO), which was founded in 1962. About 80% of the companies currently dedicated to this sector, are members of ABIMO, including some multinationals.

ABIMO entertains close relations with government agencies and advocates an industrial policy aimed at reducing Brazil’s dependency on imported medical technologies.

Distributors and representatives of imported medtech products are organized in a different entity, ABIMED, with currently about 170 members.

In 1974, medtech made in Brazil had a share of 73% of the Brazilian market. Nowadays it is around 40%. National manufacturers were benefitting from protectionist measures under the government’s import substitution policy, but neglected innovation. The business environment changed in the 1990s, when some barriers were lifted, and in the 2000s, when the newly established National Agency of Sanitary Surveillance (ANVISA) began to enforce modern production standards. The competitive pressure and compliance difficulties forced selected Brazilian companies out of the market, while others managed to improve their productivity and technology.

The National Development Bank (BNDES), an important institution for implementing the government’s industrial policies, has assessed the competitiveness of the medtech industry subsectors in a recent publication.3 BNDES states a strong heterogeneity of the local production as well as an increasing pressure on local companies due to growing local production by multinational companies, which installed industrial plants and/or acquired domestic producers.

The local industry generally operates at the lower end of the technology scale, where also value added is lower.

This might have been the main rationale behind national production growing less than imports. The share of

2

For detailed information on ABIMO’s market study please refer to http://www.slideshare.net/EmpreenderSaude/i-pesquisa-status-da-indstriade-medical-devices-no-brasil 3

BNDES (2013): Equipamentos e tecnologias para saúde: oportunidades para uma inserção competitiva da indústria brasileira.

BNDES Setorial 37, 03/2013, pp. 173-226. www.bndes.gov.br/SiteBNDES/export/sites/default/bndes_pt/Galerias/Arquivos/conhecimento/bnset/set3705.pdf BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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electromedical, electrotherapeutic and irradiation equipment, typically composed of products with higher added value, makes up for less than 20% of the local production.

The most competitive subsectors of Brazil’s medtech industry are hospital consumables, which account for 45% of medtech exports, and dental products. The high number of dentists in the country makes Brazil one of the world’s biggest markets and effectively sustains national suppliers.

Brazil also has competitive domestic manufacturers of neonatal incubators. The companies Fanem, Olidef and Gigante are exporting to more than 60 countries, including the US, Europe and the Middle East. It has a reasonable productive capacity for equipment used in critical care, including monitors, ventilation devices, anesthetic devices and infusion valves. Many systems, however, are insufficiently integrated. According to ABIMO, local production has grown fastest in the implants subsector between 2007-2013.

The BNDES sees a good potential for local production of endoscopic and ultrasonic devices, hemodialysis filters and equipment, bioabsorbable implants and implants with embedded microelectronics, as well as devices and reagents for Point-of-Care (POC)-testing. Whereas hospital consumables and diagnostic imaging subsectors are competitive, but dominated by subsidiaries of multinational companies.

The Brazilian government has launched a domestic production stimulus package in order to reduce the country’s dependence of imported healthcare products. Various policy channels are used, such as taxation, financing of modernization and innovation, public purchasing and public-private productive development partner-ships (PDP). In June 2012, a list of 80 items for which local producers can charge a premium of up to 25% compared to imported products had been released. Local content requirement generally should reach 60%. The initiative gained a further boost in 2013, when 15 new development partnership projects, including cardiology devices, stents and balloon catheters, hemodialysis and dialysis filter, pacemakers, defibrillators, ophthalmology equipment and patient monitors, were announced. Products produced by these 15 PDPs are supposed to generate savings to the public healthcare services (SUS) of US$ 166 million.

3.2. LEADING BRAZILIAN COMPANIES The most traditional and renowned Brazilian medtech companies are briefly presented in the following chapter: Founded in 1952, Baumer (www.baumer.com.br) claims to be the leading Brazilian manufacturer of orthopedic implants and instruments, and the market leader in Brazil’s public sector. Hip and knee implants are its flagship products. Its production plant in Mogi Mirim (SP) was established in 1981. Baumer’s offer also includes biomaterials (for orthopedic and dental use) and hospital equipment (sterilization and waste treatment, anethesia apparatus and surgical tables). At the Hospitalar 2014 trade show, the company presented its intelligent surgical room. Baumer has annual revenues of approximately R$ 100 million, including exports to Latin America, Africa and the Middle East. In 2012, R&D investment accounted for R$ 5 million. In 2013, Baumer announced a reorganization of the business and acquisition plans. The company is mainly family owned.

Surgical table made by Brazilian company Baumer

Source: IDSA

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The dental products segment is represented by Dabi Atlante (www.dabiatlante.com.br), Gnatus (gnatus.com.br) and Olsen (www.olsen.odo.br). Both Dabi Atlante and Gnatus are headquartered in Ribeirão Preto (SP), which has become the industrial park for the production of dental materials and equipment since the creation of USP’s (University of São Paulo) School of Dentistry in the 1920s. These companies may be considered interesting partners for technology and innovation transfer with Swiss counterparts, as they are looking to expand their product portfolios through integrated partnerships. Their company profiles can be found in the succeeding section.

Dabi Atlante (www.dabiatlante.com.br) has been in the market for 68 years. The company markets more than 100 items of dental equipment through 35 domestic and 37 international distributors, and exports regularly to over 30 countries, reaching around 80 countries worldwide. Among them: Canada, Switzerland, Saudi Arabia, Russia, Mexico and England. In Russia, the company is the market leader in number of sales. In 2012 the net sales revenue was over R$ 93 million. In 2007, the group created the D700 brand, aimed to reach the low-cost market, with machines and equipment at more accessible prices.

Gnatus (gnatus.com.br) has been in the market for 38 years. Gnatus exports to more than 142 markets (Australia, Mexico, India, Germany, Russia); its exports make up for US$ 21 million or 60% of its total sales. In 1993, the company completed the construction of a modern manufacturing plant, in the city of Ribeirao Preto, countryside of the State of Sao Paulo, occupying 130,000 m2, reflecting its competitive position against Dabi Atlante, which also manufactures its products in Ribeirão Preto. Gnatus works with four branches of products: medical, image, podiatry and dentistry. The company’s portfolio includes x-ray machines, dental sets and clinical tables.

Olsen (www.olsen.odo.br) exports around 50% of its production to around 100 countries. For 2013, their net revenue was estimated at R$ 23.8 million. The company’s factory is established in Palhoça, SC, but Olsen has a branch in São Paulo, SP. Olsen’s portfolio includes dental sets, surgical chairs, x-ray viewers, workstation modules for dentists and more.

Cremer (www.cremer.com.br), founded in 1935, is a leading manufacturer of textile and adhesive products and the largest distributor of disposable healthcare products in Brazil. It is located in Blumenau, SC and serves mainly the Brazilian market, but exports to more than 20 countries in South America and Europe, through their hospital division. The main lines of this division are the products for hygiene, first aids, orthopedics, surgical disposables, etc. In 2013, Cremer’s net sales revenue was slightly over R$ 582.5 million.

EDLO (www.edlo.com.br), founded in 1963, claims to be Brazil’s largest surgical instrument manufacturer.

The company manufactures around 4’000 instruments for video endoscopic surgery, general surgery, cardiovascular, traumatology, orthopedics and dentistry. The company also offers video endoscopic kits for pediatric surgery and specialist equipment for the surgical treatment of obesity. Exports to 16 countries (USA, Europe and Latin America) represent about 12% of total sales. In 2012, Edlo’s revenue reached R$ 12 million.

The company’s portfolio includes equipment for several kinds of surgeries.

Fanem (www.fanem.com.br) operates since 1924 in the neonatology and phototherapy sectors. Headquartered in Guarulhos (SP), the company employs about 300 people in Brazil and has recently opened an assembly plant in Bangalore, India. Moreover, they have a representation office in Jordania. Fanem exports incubators, infant warmers and phototherapy equipment to more than 100 markets, but mainly to Latin America and the Middle East; exports represent approximately 30% of the total revenue of R$ 115 million (2013).

Also, 7% of the company’s revenue is destined for R&D purposes.

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Incubator made by Brazilian company Fanem

Source: Fanem

Gigante (gigante.com.br) designs and manufactures products for neonatal use, including incubators, as well as furniture for ophthalmologic and ENT use.

Lifemed (www.lifemed.com.br) specializes in the production of infusion pumps and equipment, patient monitors, surgical disposables and sterilization equipment. Through strategic partnerships with universities, other medtech companies and investment it has continuously developed. An automated external defibrillator was launched on the Brazilian market in 2013.

Hospimetal (www.hospimed.com.br) is a leading manufacturer of hospital furniture, including sophisticated recovery beds for intensive care units.

Silimed (www.silimed.com.br) is Latin America’s only manufacturer of silicone implants and ranks itself third in the world for production of breast implants. The company initially imported silicone implants from France, but started domestic production in 1981. Its portfolio includes all kind of silicone implants (e.g. facial, pectoral and body contour), silicone sheets and blocks, scar prevention and repair products. The company now runs two manufacturing plants, both in Rio, and exports to 60 countries, including the US.

3.3. MULTINATIONAL COMPANIES There are many large international medtech companies active in Brazil. A number of them have decided to invest in manufacturing facilities in the country. Even though the local production costs are relatively high, a local production base brings obvious benefits when participating in public tenders. Local content requirements also apply to investments in the private sector when they are financed by the BNDES. 3M (www.3m.com.br) has had a direct presence in Brazil since 1946 when the company founded its first factory in Campinas (SP). Today it is headquartered in Sumare (SP). 3M manufactures medical, surgical, diagnostic, dental and orthodontic products, information systems and personal care. The company employs around 4’000 people in Brazil. Sales amounted to US$ 1 billion in 2010.

Covidien (www.covidien.com.br) is present in Brazil through five subsidiaries. Its polysuture subsidiary, acquired in 2007, is located in São Sabastião do Paraiso (MG). In January 2014, the company acquired WEM Equipamentos Eletrônicos, the Brazilian manufacturer and market leader of electro-surgical equipment. WEM claimed a market share of over 70% in Brazil. Exports went to 60 countries and represented about 25% of the total revenue. WEM’s manufacturing facility is located in Ribeirão Preto (SP).

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GE Healthcare (www3.gehealthcare.com.br) opened its first Latin American manufacturing plant for X-ray, MR and mammographic equipment in Contagem (MG) in July 2010. Investments in the new plant amounted to around US$ 50 million. More recently, the factory has begun to produce PET/CT products. In June 2012, GE Healthcare acquired XPRO Sistemas Ltda, a Brazilian manufacturer of X-ray equipment with applications in cardiology, peripheral vascular, neurology and therapeutic radiology. And in August 2013, it acquired Omnimed, a Brazilian manufacturer of patient monitoring equipment. Omnimed’s products are complementary to the GE Healthcare portfolio in monitoring equipment and will allow the expansion of its coverage on the healthcare market. Brazil is one of four focus countries in GE Healthcare’s globalization process and it set to be the export hub for Latin America.

Johnson & Johnson (www.jnjbrasil.com.br) has had a direct presence in Brazil since 1933. It operates a manufacturing facility in São José dos Campos (SP). The plant is one of the three sites that Johnson & Johnson has kept for the production of sutures and needles since production was centralized in 2003. The manufacturing plant produces 300 types of needles, apart from absorbable, non-absorbable, natural or synthetic sutures. They are used in a number of therapeutic areas, including gastroenterology, ophthalmology, cardiovascular, urology, plastic surgery, neurosurgery and orthopedics. About 70% of production is exported to Europe, India, Pakistan and the US, 15% is consumed in Brazil, and the remaining 15% in other Latin American countries.

Medtronic (www.medtronicbrasil.com.br) has had its Latin American headquarter in São Paulo since 1970 and currently employs about 100 employees in Brazil. In 2011, it announced plans to readopt production in Brazil in order to substitute imports by locally manufactured products. With the acquisition of Covidien, announced in June 2014, this will eventually happen.

Philips (www.philips.com.br) uses Brazil as a production platform for emerging markets and developing countries. Having acquired two Brazilian companies in 2007 and 2008, it now owns factories in Lagoa Santa (MG), Manaus (AM) and São Paulo, and a software development center in Porto Alegre. In October 2008, Philips inaugurated its first plant for the production of MRI and CT equipment outside Europe. Philips Healthcare claims about 35% of the MRI market in Brazil, but expects to increase this market share to 45% as local production increases.

Siemens (www.siemens.com.br) has been active in Brazil for a long time. Following manufacturing investments from its two main competitors, GE Healthcare and Philips, Siemens announced a US$ 1 billion investment program that to localize production, expand R&D and double revenues by 2017. Today, Siemens operates six R&D centers and 13 manufacturing facilities in Brasil. It claims to have one third of the diagnostic imaging sector in Brazil, with sales of MRI, tomography and angiology equipment units.

Straumann (www.straumann.com.br) acquired a 49% stake in Neodent, a Curitiba based manufacturer of dental implants and prosthetic components in May 2012. Neodent controls about a third of the Brazilian market and has shown high growth rates in the recent years. It has 10 branch offices in Brazil and subsidiaries in Portugal and the US. Synthes (synthesbrasil.com.br) founded its Brazilian subsidiary in 1988, with headquarters in Rio Claro (SP) and four sales offices in São Paulo, Brasilia, Curitiba and Porto Alegre. Imports directly from Switzerland represent around 90% of the company’s sales in Brazil, but in order to be competitive in the domestic market and especially in the public sector, Synthes also manufactures a basic product line for trauma (screws, plates, DHS etc.) at its Rio Claro plant; the raw materials and instrument sets are imported from Switzerland. The company employs about 350 people in Brazil. After its acquisition by Johnson & Johnson in 2012, it operates alongside Johnson & Johnson's orthopedic business DePuy. Varian (www.varian.com) was awarded a Ministry of Health tender for 80 linear accelerators (US $ 55.5 million). In return, Varian has committed to establish a production facility in Brazil.

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4. Brazil’s healthcare system The Brazilian State has the objective to provide comprehensive healthcare for all citizens, free of charge. The reality sometimes is different. Public healthcare is underfunded, requiring millions of Brazilians to rely on private health insurance and services instead. In the State of São Paulo 45.2% of the population has private health plan or insurance, in Rio de Janeiro, 39.5% (see Figure 24). Countrywide, there are now 50 million health plan beneficiaries, out of a population of 200 million. 38.7 million beneficiaries live in the South and Southeast regions of Brazil.

Figure 24: Private health plan coverage

Source: ANS, December 2013

For medical equipment producers, it is estimated that private sector customers account for about 70% of demand in Brazil (Figure 25). The public/private split may vary depending on the product.

Figure 25: Customers of local medtech manufacturers

% OF SALES, 2013 Private Sector

69.6%

Public Sector

19.4%

Exports

10.2%

Others

0.8%

Source: Espicom Business Intelligence, ABIMO BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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4.1. THE PUBLIC SYSTEM (SUS) The 1988 Constitution declared health care to be a fundamental right for every citizen, and its provision the duty of the state. It was the birth of Brazil’s Unified Health System (Sistema Único de Saúde – SUS).

In theory, SUS is supposed to provide all kinds of medical services, from basic healthcare to the most advanced and costly treatments, including drugs. In practice, however, the public system’s capacity is limited; both in terms of manpower as well as in terms of technology and infrastructure. Patients may be kept on waiting lists for treatments. Cases of mismanagement and bad resource allocation have become increasingly public (e.g. newly built hospitals without operation license, medicaments that are not distributed etc.). The general dissatisfaction with public services took people to the streets recently, calling for less corruption and demanding higher investments in health, education and public transport. The healthcare panorama was also prominently debated in the context of the presidential elections in Brazil. Reforms are urgently needed.

The SUS system is funded by taxpayer money, with the three layers of government (federal, states and municipalities) all contributing to the overall funding. A tax (CPMF) allocated for public health purposes was abolished in 2008, leading to a shortage of financial resources. The government has since proposed a whole range of alternative taxes and sources of finance in order to increase funding for public health; the implementation is not yet concluded. A constitutional amendment (n°29) adopted in 2000 set higher targets for public health expenditure by the Union, States and Municipalities. Legislation was finally passed by Congress in December 2011. The federal government, which spends 7.8% of its budget on public health, has now to gear up health spending in line with inflation and GDP growth. In 2014, the Ministry of Health’s budget was increased by 5.5%, compared to 2012, reaching R$ 106 billion. States and municipalities will have to dedicate 12% and 15%, of their total revenues to public health.

The SUS budget is spent on running public hospitals and health posts, a family doctor program, vaccination campaigns and similar others, but also on reimbursing private healthcare providers for services rendered to patients without insurance cover.

The SUS system covers not just basic health services, but also pays for high complexity treatments which are not or only partially covered by private health insurance, such as organ transplants (95% paid by SUS), cancer treatments (97% of chemotherapy procedures are paid by SUS), but also hemodialysis (97%), and heart surgeries. In 2012, SUS attended no less than 107’500 dialysis patients, covered 65’000 cardiovascular surgeries and 24’000 organ transplants, 94’000 cancer surgeries, 2.4 million chemotherapies, 9 million radiotherapy sessions and 2.1 million mammographies. It is important to note that these treatments are usually performed not by public hospitals, but by private healthcare providers on behalf of the SUS. To give an example, more than 85% of Brazil’s 22’000 hemodialysis equipment belongs to private hospitals. According to a Ministry of Health estimate, SUS is expected to pay for half of the medtech products sold in the country. Nevertheless, purchasing decisions are made by private health service providers.

Any new technology that aims to be provided or reimbursed by SUS must first seek approval by the Minister of Health. Its decision usually follows the recommendations of the National Commission for the Incorporation of Technologies (CONITEC). In its appraisal, the Committee takes into account the budget impact as well as scientific evidence regarding the effectiveness and safety of the new technology. It needs to conclude its considerations within 180 days (plus eventual prolongation of 90 days).4 It is important to note that the registration of a product with ANVISA (see chapter 6) does not prejudice CONITEC’s appraisal and subsequent inclusion in the SUS list. In order to improve transparency in public procurement of drugs and medical devices, the PUBLInexo system (www.publinexo.com.br) collects and provides information about prices and the respective quantities supplied to public health institutions by more than 13’000 suppliers.

Based on the Constitution’s Article 196, patients with an immediate need may take legal action to gain access to medicines or clinical procedures not yet included in the SUS list, or sometimes still waiting for registration.

There are thousands of such cases every year, making it even harder for the SUS to dispense healthcare in a universal and equitable manner. The judiciary increasingly influences public health services.

4

Law 12.401/2011 and decree 7.646/2011.

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4.2. PRIVATE HEALTHCARE Under the 1988 Constitution, it was expected that private healthcare plans would either disappear or play an insignificant role within the public healthcare system. Contrary to this expectation, managed healthcare plans have experienced extensive growth in the last decade, as they compensate for shortcomings of the public system. Moreover, contributions to health plans are tax-deductible.

According to the sector’s regulatory agency (Agência Nacional de Saúde Suplementar, ANS), the number of beneficiaries of private healthcare plans has increased from 30.7 million in late 2000 to 50.3 million in December 2013 (see Figure 26). Not all of these cover dental health; therefore, 20.7 million people have additional dental health plans.

Figure 26: Beneficiaries of medical and dental health plans

Beneficiaries of medical health plans (millions) Beneficiaries of dental health plans (millions) Average growth rate 60 50 CAGR: 3.8% p.a.

40 30 20

CAGR: 17.3% p.a.

10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: ANS

Healthcare plans are often paid for by the employer as a fringe benefit, also to avoid that employees waste valuable work time waiting in crowded public hospitals. The variation of the number of private health care beneficiaries is therefore highly correlated with the development of formal employment. Larger companies may even hire own doctors to provide primary care on company premises.

The most common form of managed healthcare plans in Brazil is the health maintenance organizations (HMOs), called “convênios” in Portuguese. The biggest player, with 18 million beneficiaries, is Unimed. Some, like Bradesco Saúde, are special divisions of general insurance companies, listed on the stock exchange. Others (like Unimed) are cooperatives. The total number of private health plan operators is decreasing since 2001.

The ten largest (excl. Unimed) hold nearly 40% of the beneficiaries. The growth of the private health care market has attracted international actors. Amil was acquired in 2012 by the US-American United Health Group (UHG).

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Figure 27: Leading health insurers

REVENUES 2013 R$ million Bradesco Saúde S.A

BENEFICIARIES 2013

12‘211

3'671‘250

Sul America Companhia de Seguro Saúde

5‘781

1‘900‘750

Amil Assistência Médica Internacional S.A.

9‘757

6‘115‘700

Source: ANS Note: Unimed does not appear in this list due to its decentralized organization. As a cooperative it is built up of numerous entities.

According to Law n°9656, the regulatory agency (ANS) establishes a minimal standard of services to be covered by HMOs (e.g. admission to officially recognized hospitals, incl. drugs, material and laboratory services dispensed), excluding others (e.g. esthetic surgery, drugs for outpatient care). ANS decisions are based on CONITEC’s evaluation (see chapter 4.1). For example, ANS included positron emission tomography (PET-CT) in its list in 2010, five years after the technology was first introduced to Brazil. From January 2014, mandatory coverage for private health plan beneficiaries has been expanded to cover 50 new procedures including 28 laparoscopic procedures. Mandatory coverage has also been expanded for a further 44 procedures already on the list, including new indications for PET scans and coronary angiography. More inclusions are expected every year.

Within these limits, HMOs are free to define their coverage, i.e. the diseases covered in their plans. According to a Supreme Court decision HMOs may not restrict the type of medical treatment. This decision shall be taken by the doctors.

Usually, an HMO offers different plans, from basic ones (for lower-level employees) to more complete ones (to management level). There are also regional differences. And of course, in a country like Brazil, everything is subject to constant change; the service level of a large, well-known HMO may deteriorate in the context of some cost-cutting measures imposed by its top management, while at the same time, new unknown HMOs may (temporarily) offer a remarkably generous service level in a quest to gain market share.

HMOs are putting strong pressure on prices, paying very little money to the doctors. Where a doctor usually would charge R$ 200 for a consultation to a high income patient paying out-of-pocket, the HMO would only reimburse R$ 40. To increase its profits, physicians often maximize their “sales volume” which results in less attention time to patients. It is common practice for physicians to fix appointments on a 15 minute interval.

When it comes to more complex and expensive treatments, the HMOs may refuse payment and refer patients back to the public system, or they authorize treatments only after special requests by doctors or sometimes only after legal action. Patients may also be asked to pay the difference between a standard and a more expensive option (e.g. using an imported product) out of their own pocket.

Even though Brazilian consumers are rather price-sensitive, experience shows that when patients have to pay themselves, the price level is usually higher than when HMOs reimburse or when the government delivers for free, as the patients’ bargaining power is small compared to that of such large institutions. It is for this reason also that the government controls retail prices of drugs, by the Ministry of Health’s Chamber of Medicines (Câmara de Regulação do Mercado de Medicamentos, CMED). Medical devices are currently not subject to such price controls. BIOnexo (bionexo.com/br), the complement to PUBLInexo (www.publinexo.com.br) for the public tendering process, provides information to all actors especially in the health care market.

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5. Hospitals and diagnostic laboratories 5.1. HOSPITALS There are more than 6’200 hospitals in Brazil, of which more than two thirds are private and philanthropic institutions (see Figure 28). According to the Brazilian Federation of Hospitals (FBH), there were 506’300 hospital beds in July 2014.

Figure 28: Hospitals and clinics in Brazil

Hospitals (general) Hospitals (specialized) Policlinics

PUBLIC

PRIVATE

PHILANTHROPIC

TOTAL

2’038

1’604

1’509

5’151

264

640

179

1’083

1’311

4’550

208

6’069

Source: CNES, June 2014

The majority of public hospitals and policlinics are basic healthcare providers with restricted budgets and outdated equipment. The quality of public hospitals varies greatly, depending on how much a municipality and the state contribute in addition to the federal funds. In the richer South and Southeast of Brazil, hospitals are usually better funded and therefore equipped with modern technology.

There are renowned centers of excellence in the public system, like the Clínicas Hospital associated with the University of São Paulo (with a total number of 2’200 beds, the largest medical institution in Latin America), or the Cancer Institute of the State of São Paulo (ICESP), which attends 6’000 patients every month. Since 2012, the ICESP is a beneficiary of the National Program for Oncology Care, PRONON. The PRONON program was established in 2012 with the objective to capture and channel resources to the prevention and treatment of cancer.5 Selected public hospitals are run by private operators, under management contracts with the respective state governments. Others benefit from technology transfer and training projects offered by private hospitals (which are granted tax exemptions in turn).

The philanthropic hospitals are mostly located in smaller town, and administrated by clergymen. Some of these hospitals were founded by colonies of immigrants. By law, philanthropic institutions need to work at least 60% for the SUS. These institutions claim that the SUS only partly covers the related expenses. As a consequence, many philanthropic institutions have incurred a heavy debt burden. Suppliers of philanthropic hospitals therefore need to be careful and usually ask for stricter terms or higher prices to cover the risk of possible late or non-payment. In July 2014 for example, the philanthropic hospital Santa Casa de Misericórdia de São Paulo announced the suspension of emergency care, due to a lack of funds. The local government pledged to release R$ 3 million to help the hospital resume its emergency care service while calling for an audit of the facility's finances.

5

The PRONON (Programa Nacional de Apoio à Atenção Oncológica) grants taxes exemptions for companies and individuals who make direct donations to institutions like ICESP an INCA (Brazilian National Institute of Cancer).

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Hospital Clínicas in São Paulo

Source: Swiss Business Hub São Paulo

Among the operators of private hospitals, there has been a consolidation process. Unimed owns 107 hospitals throughout Brazil. The group Rede d’Or, backed by an investment bank, runs 27 hospitals in the States of São Paulo, Rio and Pernambuco, and after a series of acquisition, plans to invest R$ 500 million in 2014 in organic growth. Some of the leading private hospitals are organized in the National Association of Private Hospitals (ANAHP); with 55 hospitals, this group brought to account total revenues of R$ 17.3 billion in 2013.

Due to high occupancy rates – ranging between 75% and 85% – and the need to incorporate new technologies, many private hospitals implemented expansion projects. A few examples from São Paulo include: The Hospital Albert Einstein, the biggest ANAHP member with revenues of R$ 1.6 billion in 2012, plans to invest R$ 1.2 billion in expansion until 2017. Its closest competitor, the Hospital Sírio-Libanês (annual revenues R$ 1.1 billion), kicked off a massive R$ 1 billion project to double the number of beds in its unit in Bela Vista by 2016. The Hospital Alemão Oswaldo Cruz (annual revenues R$ 447,2 million) inaugurated a new building in 2012, which demanded R$240 million of investments. Roughly one third of this amount goes into equipment. The expansion of these hospitals will require new state of the art equipment ranging from operation theaters to patient care units and hospital rooms. At the same time IT related technology for managing these hospital chains may be required and could offer an interesting opportunity to companies active in this segment.

ANAHP members spend 29.5% of their total expenditure on materials (including drugs and medicinal gases) in 2013 (Figure 29).

Figure 29: Structure of expenditure of private hospitals

Maintenance Maintenanc & e and technical assistance Utilities 1.9% 3.4%

Others Depreciatio 5.4% Depreciation n 4.8%

Support and logistics 4.2% Technical and operational contracts 8.1%

Payroll 42.7%

Materials 29.5%

Source: ANAHP, 2014 BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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5.2. DIAGNOSTIC LABORATORIES In Brazil – in contrast to Switzerland, doctors in private practices rarely take blood or other biological samples from their patients. Some health plans don’t allow it, and patients are generally not used to this practice.

Instead, patients go to collection points of private laboratories, sometimes located in shopping malls or commercial premises. As a consequence, it is rare to sell diagnostic devices to physicians in Brazil. Diagnostic laboratories are important clients to providers of such equipment and may be interested in sourcing new technological equipment from abroad.

Until the early 90s, the clinical laboratory industry in Brazil was extremely fragmented, with even small villages often having more than one small laboratory, or tests and analysis being made by doctors in their own offices or in small laboratories. Since the mid-90s, the market has experienced profound change, driven by new technologies that favor market consolidation. The consolidation started when the country opened its markets and foreign capital and modern administration took over. Private equity firms have been especially active in seeking opportunities for consolidation. The two market leaders, Diagnósticos de América (DASA) and its main competitor Fleury, are listed on the stock exchange.

Figure 30: Leading diagnostic service providers

REVENUE 2013 US$ million

EMPLOYEES 2013

DASA Diagnósticos da América

781.5

+5%

19'272

www.dasa3.com.br

Grupo Fleury

724.3

+6.5%

8'822

www.fleury.com.br

Instituto Hermes Pardini

220.4

+10.6%

2'540

www.hermespardini.com.br

Laboratório Sabin de Análises Clínicas

118.6

+135%

1'394

www.sabinonline.com.br

Sources: Exame, Melhores e Maiores

DASA is offering a portfolio of more than 3’000 types of examinations. It disposes of more than 500 service centers in 12 states, and currently has 25 distinct brands, aimed at different levels of service (executive, standard and public). While DASA acquired laboratories all over the country, Fleury grew more organically, crowding out small laboratories. The Fleury Group is one of the traditional organizations of medicine and health in the country and recognized by the medical community for its excellence in customer service and technical quality. The group has been continuously expanding in new regions, complementing its mix of services and increasing its knowledge base. Today, Fleury has a portfolio of over 3’500 tests in 37 different diagnostic areas and is present in the main economic centers in the country.

Since many Brazilian hospitals do not consider diagnostic services to be their core business, they are inclined to form partnerships with external providers. In 2011, Fleury acquired the labs of the Rede D’Or hospitals chain and now operates 30 diagnostic centers in hospitals, while market leader DASA lists about 50 private hospitals as its partners.

The laboratories have shown great interest for high-performance analyzers and integrated solutions, such as systems, which integrate clinical chemistry and immunology. Such integrated solutions usually go hand-inhand with innovative software and a consultative selling approach, which often required competencies that diagnostics manufacturers and their distributors had to develop first. On the part of service providers, the level of investment required to implement such technologies increased the importance of achieving economies of scale, further accelerating the market integration. The use of robotic and computer resources have become key competitive strengths.

The market for Diagnostic Medicine is growing fast and constantly. Expenditures on diagnostic services totaled US$ 16.2 billion in 2012, i.e. an increase of US$ 11.3 billion compared to 2002 (CAGR of 12.7%).

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Figure 31: Evolution of expenditure on diagnostic services

Expenditure on diagnostic services (R$ billion)

yoy (right-hand scale)

18

16'178

16 11'159 8'974

10 8 5'214

4 2 0

35%

12'399

12

6

40%

14'350

14

5'896

6'742

30%

9'980

25%

7'627

20% 15%

18% 14%

13%

13%

16% 11%

12%

2008

2009

13%

11%

10% 5%

6% 2003

45%

0% 2004

2005

2006

2007

2010

2011

2012

Sources: ANS in Pietraroia (2013)

The strong growth leaves room for additional groups to establish and expand locally. The relatively young Alliar Medicina Diagnóstica (founded in 2011) pursues an ambitious growth strategy. Alliar made more than 10 acquisitions and revenues of about R$ 300 million in 2013. In addition Hermes Pardini and Sabin are expanding their acquisition strategy lately.

Today, the two largest companies (see Figure 30) – DASA and Fleury– represent together 25% of the domestic market. The industry association ABRAMED, founded in 2010, actually comprises 19 members. Because of high economies of scale and better opportunities to negotiate with the payers and suppliers, the industry consolidation is supposed to continue. But despite the concentration process, there are still a big number of small and medium-sized laboratories (approximately 8’000 companies with 16’000 clinical and 10’000 imaging labs). Many of these depend on the large companies of the sector DASA, Fleury or Hermes Pardini as reference centers, when it comes to processing clinical samples and analyzing images, especially in highly complex cases.

5.3. PUBLIC TENDERING The acquisition of medical equipment and materials in Brazil is rather decentralized, with public, philanthropic and private institutions contracting suppliers on their own. Since the creation of the SUS system, all public purchases have to meet the rules of the public submission process. The administrative procedure is highly regulated. All tenders must be publicly announced. But also many private and philanthropic institutions make their purchases through tenders (“Licitações”).

There are many different types of tenders (called Concorrência, Tomada de Preços, Leilão, Concurso, Convite / Carta Convite, Pregão presencial / eletrônico, Consulta).6 The differences between them are not relevant for this overview. Suffice it to say that the supplier who offers the lowest price usually wins the tender. However, recent government initiatives to stimulate local production try to make better use of state purchasing power to support the health products industry and also include the use of preference margins for locally manufactured products.

Each tender has its detailed list of requirements, including technical specifications, delivery terms, and obligations in terms of after-sales services like training and technical assistance. These requirements are summarized in a document called “edital”.

6

The Federal Law 8.666 from 1993 details the possible models for all public levels (federal, state and municipal) and also what can be exempted. This law also provides the basic requirements for foreign companies to participate in public tendering.

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Every sales rep selling to the government anxiously awaits the “edital”. Traditionally, a sales rep visits the purchasing department of hospitals frequently enough to check whether there are new “editais” available. The “edital” also sets the date for tenders, tenders can sometimes occur on surprisingly short notice. Many (but not all) hospitals also publish the “edital” on the internet and some companies have employees who are dedicated to monitoring the internet to detect new “editais”. There are service providers (like BIOnexo and its different platforms) which facilitate this job.

An “edital” usually stipulates an estimate of the product volume to be consumed by the hospital, but this does not represent a purchasing obligation. In order to make an actual purchase, the hospital administration first has to issue a purchasing authorization, called “empeñho” with a specific value.

In some cases, doctors will need to perform trials before they can validate a new brand or product, or the supplier will need to register and qualify before he gets invited to participate in tenders. Delivering and invoicing to the government includes a lot of bureaucratic hurdles and administrative steps. Sales reps often spend a considerable amount of time resolving these issues and intermediating between the hospital administration and the supplier’s administration before the transaction may be concluded.

5.4. AVOIDING PITFALLS In order to create demand for their products, suppliers of medical devices and equipment need to convince doctors and opinion leaders of the benefits of their product and to persuade the decision makers within the hospital. As doctors usually earn very little money from the HMOs, often only a fraction of the cost of the expensive drugs and medical devices that they prescribe or use, it may not surprise that some manufacturers “reward” brand loyalty of physicians. “Rewards” may take various forms, including cash kickbacks, and are often channeled through a local distributor. This is especially the case with surgeons who deal with all kinds of implants and other medical devices, and with doctors who deal with expensive pharmaceutical treatments or diagnostics procedures.

While some of the biggest hospitals at state and federal level seem to be unaffected, such influential practices may occur. This is an important point to consider in any market-entry evaluation. At the same time, renowned hospitals may be requiring international suppliers to deal directly with them, and exclude local distributors or wholesalers in order to increase transparency in the negotiation process.

Due to high interest rates, a long history of capital scarcity and underfunded public hospitals, leasing or renting medical equipment could be considered an interesting solution to local clients. However, such a business model increases significantly the complexity of price calculation, contract endorsement and customer profitability management. If the price is to include spare parts, calibrators and the numerous hours of technical service and application support given for free to the client as well, calculation may become very complex. In addition, the complexity of the Brazilian tax system with its different layers of sales and VAT taxes may add to the aforementioned complexity in finding a suitable pricing structure for the local market.

Another challenge lies in the area of accounts receivables. Special emphasis shall be given to transactions with local municipal institutions, which may be subject to ongoing changing administration, which influences the payment with its suppliers. A key success factor in selling to the municipalities is to know about such changes in the administration, to know which municipalities are more reliable payers than others, and which purchasing needs are earmarked as priority or have a more secure funding. Indeed, when it comes to selling to municipalities, recent cases have shown that suppliers have to separate two kinds of influencing factors: one to sell the products to the purchasing entity and another one to receive the money from the institutional owner.

They can involve different decision-makers in the organization and different behaviors.

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6. Regulatory environment 6.1. ANVISA The National Agency for Sanitary Surveillance ANVISA (Agência Nacional de Vigilância Sanitária) is responsible for the regulation and surveillance of the medical products markets including product registration, operating licenses, import and export, distribution and marketing. It is commissioned to ensure quality, safety and efficacy of products with an impact on human health. ANVISA is an independent agency of the government and has financial autonomy. It acts as the FDA’s counterpart.

The Brazilian legislation for healthcare products is unique. The majority of products used in the healthcare field have to require approval of the ANVISA before being commercialized in Brazil. There are no automatic approvals based on licenses in other countries.

In order to commercialize products in Brazil, two registrations are needed: first, the company registration, the so-called operation permit (Autorização de Funcionamento, AFE) (see chapter 6.2) and second, the product registration (see chapter 6.3). Only companies registered (legalized) at ANVISA can manufacture, import, export, commercialize and transport healthcare products. This means, products must always be registered in the name of a company located in Brazil. Imported products have to be registered by the importing or distributing company; locally produced products are registered by its manufacturer.

Only products registered with ANVISA in the name of a local company disposing of the ANVISA operation permit to import and distribute medical devices can be imported. The registrations will be checked when goods arrive in Brazil and goods are only cleared after the verification by ANVISA officials. The registration process must be effected before any importation process takes place.

Regulatory changes are frequent in Brazil and must always be expected. Often fortunately, regulatory reforms facilitate, speed-up, simplify or adapt processes to international practices – not least because Brazil is interested to open export opportunities for its own medtech industry and to support and accelerate innovation in the Brazilian health care sector. Agreements with the health surveillance agencies of other countries and the recognition of audits and inspections carried out by international agencies or certifying bodies are under consideration and may come into force shortly.

A high level of expertise about the complex authorization and registration processes and the operation of Brazilian bureaucracy are necessary. Contracting the respective consultancy services is therefore highly recommended and will affect a successful start considerably.

6.2. COMPANY LICENSING According to Brazilian Law, only companies duly registered (or licensed) in Brazil as an import and distribution company can submit registration process requests for imported goods to ANVISA. The international manufacturer cannot register products directly with ANVISA under its own name. It is necessary to have a local partner with an ANVISA license, or to open a subsidiary in the country that will apply for this license. The different aspects of these options are discussed in chapter 7.1. Entities with company license issued by ANVISA are typically local manufacturers, local importers, or local consulting firms.

To legalize or license a subsidiary in Brazil as an importer and distribution company, companies have to expect a period of 10 to 12 months due to the several governmental agencies involved in the process. If the company chooses to open a production plant in Brazil, the timeline to request and obtain all licenses may take up to 15 months. The local manufacturing subsidiary will then be able to request product registration.

The first step for a company to become qualified to manufacture, import and/or distribute products subject to sanitary surveillance in Brazil is to hire an agent who needs to be resident in Brazil, to formulate the company by-laws and establish the company. This takes around 45 working days.

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To assess the viability of the company to be established in a particular location is of great importance (this service is offered by consulting companies) as it has an impact on taxation, importation and licenses matters.

Depending on the city and chosen area, a technical visit may be required. It is also important to evaluate, if the chosen property meets ANVISA ’s Sanitary Code. Sometimes, modifications may be needed.

After that, the company has to prepare the project for submission: an architect elaborates a lay-out project with descriptive memorandum based on the products to be handled, and the company has to submit it for Sanitary Vigilance approval. Furthermore, the company has to demonstrate that the lay-out meets the requirements of the Fire Department (escape route, location and type of extinguishers, fire doors, sprinklers, etc.).

Subsequently, it can apply for the license by the local government (Prefeitura), for the registration of the technician responsible for the company in the regional professional register with the “Conselho Regional de Classe”, for the Certificate of Approval of the Disposal of Industrial Waste, for the Sanitary License (exclusive responsibility of the state health agency), and for granting permission to have subsidiaries carrying out related activities (at this point, an inspection by the agency is performed). All these licenses cannot be requested at the same time; one depends on the other, and this protracts the company licensing process. Finally, with the operation permit (Autorização de Funcionamento, AFE) by ANVISA, the company will be able to be the registration holder of imported goods and apply for product registration. It is strongly recommended that Swiss companies entering the market through the aforementioned model hire experienced consultants in order to avoid pitfalls and delays in the establishment of their local structure.

6.3. PRODUCT REGISTRATION There are no automatic product approvals based on approval in other countries in Brazil (mutual recognition), and there are no approvals by similarity considered by ANVISA. The product registration process is highly complex and requires intense dedication and knowledge. Due to the number of legal steps involved in the process, it is risky for an international company to try to obtain all the legal licenses and registrations without the assistance of a local consultant with high expertise. Companies can spend years trying to get products into the Brazilian market. Registration processes that are not properly prepared may be automatically denied by ANVISA. Brazil is known for its bureaucratic system, and changes in regulations are frequent. Sometimes additional non-standard requirements are requested for specific product categories. Few regulations are available in English. The support of a qualified consultant is therefore highly recommended in this case as well.

If the company decides to work with a local distributor, a thorough research is recommended before making the final choice as local partners may only be focused on one specific region of the country. The product registration, in this case, is held and owned by the distributor. It cannot be transferred (unless there is a merger or acquisition). If the manufacturer decides to change the distributor, this company will have to start a new registration from scratch. The correct choice is therefore critical, if this is the chosen alternative.

Classification of products In order to be able to register the product, the first step is to classify the products according to ANVISA regulations. The Brazilian classification is very similar to the US FDA classification and the European Medical Device Directive, but not identical, and depends on the risk to the human body.7 For registration purposes with ANVISA, materials and equipment can be classified as8: Class I

MDD 93/42 – ECC I

LOW RISK

Non-invasive products

Temporary use

No GMP Certification required

Class II

MDD 93/42 – ECC IIa

MEDIUM RISK

Invasive products

Short-term use

No GMP Certification required

Class III

MDD 93/42 – ECC IIb

HIGH RISK

Surgical products

Long-term use

GMP Certification required

Class IV

MDD 93/42 – ECC III

MAXIMUM RISK

Surgical products

Long-term use, direct contact with

GMP Certification required

CNS, CS biologically or absorbed

7

The classification rules can be found in Resolution No. 185/2001, Annex II.

8

For depiction of registration process please refer to Appendix 10.3

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Registration of products falling under the category I and II (without GMP) may required approximately 6 months, and additional 4 months in case an INMETRO certification is required. Products falling under the category III and IV may required 4 years for GMP Certification, whereas 8 months will be required for the product registration and additional 4 months in case INMETRO certification is necessary. As some products have different classification in Brazil, it is important to check the correct classification with local consulting companies before preparing ANVISA registrations. Some cosmetic products, for example, are considered drugs in Brazil, and will require clinical data for registration based on their ingredients and medical claims.

There are two regulatory pathways depending on the classification of the product: “cadastro” (generally for class I and II products, who are sometimes called “products exempt from registration”) or “registro” (for other products, mainly class III and IV and products of class I and II deemed to be of higher risk9). In practice, the two processes are similar. The main differences are that registration fee for “cadastro” is much lower and less documentation is required.

Basic documentation for product registration The required information for the registration process as well as the information on the product to be commercialized in Brazil (product label and instruction manual) depends on the classification of the product.

The main documents required to register a product are indicated below. It is a highly summarized list.

Instructions for use; Original labels; Technical report; Conformity certificates (ISO, CE, etc.); Quality control certificates and procedures; Safety and efficacy evidence (i.e. tests, CQ procedures, bibliography, clinical research, historic of use in other countries, etc.).

Timelines The timeline for registration will vary according to the type of product and ANVISA’s demand. Estimates differ. Whereas the product registration for class I and II products may last about 6 months (more or less – depending on the product being eligible for the simplified “cadastro” process or not), estimates for products that require GMP are currently expected to take up to four years.

Registration is valid for five years and can be renewed with the same registration number. Application for renewal must be filed for renewal between 12 and 6 months prior to the expiration date. The request cannot be made earlier than 1 year nor within less than 6 months from the end of the registration period. ANVISA sticks to this time frame; companies can lose their registration if they do not monitor these deadlines closely. Products not commercialized during the 5 years of registration may not have their registration renewed. The issuance of at least one commercial invoice in Brazil has to be proved. Recent legal injunctions from members of ABIMED, the Brazilian Association of High Technology Industry Equipment, Products and Medical Supplies, have helped to speed up the registration process and to open a possibility to commercialize the products whilst waiting for the plant inspection by ANVISA. A membership to this association may therefore be of strategic importance to new market entrants10.

6.4. GMP CERTIFICATION Products that require a Good Manufacturing Practices (GMP) certification can only be registered after an initial inspection of its manufacturing facilities by ANVISA. In general, this means a considerable extension of the registration process as long waiting time for the inspection may occur.

According to the regulation, which came into force in May 2010, manufacturers of high-risk equipment and materials (classes III and IV), as well as high-risk IVD products (classes II, III and IIIa), have to comply with

9

See Anvisa IN 02/2011 for the list of classifications I and II products that are subject to the “registro” instead of the simplified registration (“cadastro”).

10

For further information see: http://www.s-ge.com/de/filefield-private/files/58527/field_blog_public_files/20177

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Brazilian GMP in order to register products in Brazil. Additionally, certain class I and II medical devices, identified in Normative Instruction 02/2011, had to meet these requirements as well. According to the recent revision in March 2014 (ANVISA RDC 15/2014), all the medical devices class I and II are – with immediate effect – exempt of GMP Certification. But even though GMP is not mandatory anymore, these products listed in IN 02/2011 will continue to be submitted to a regular registration process (not the simplified registration “cadastro”). It is therefore suggested to check thoroughly the classification of the products and get an official statement by ANVISA on the classification before starting a registration process or renewal.

Furthermore as of March 2014, the registration submission for products risk class III and IV is possible in parallel with the GMP submission. As there is no possibility to get approval of the registration before the GMP certificate is approved, this opportunity only makes sense to manufacturers with the GMP certification in advanced stage.

The requirements for Brazilian GMP for medical devices conformity are outlined in RDC 59/2000. The resolution is organized in the following categories: General provisions, Quality system requirements, Project controls, Control of documents and records, Purchasing controls, Identification and traceability, Process and production controls, Inspection and testing, Non-conforming products and components, Corrective action, Handling, storage, distribution and installation, Packaging and labeling controls, Technical assistance, Statistical techniques.

The GMP certificate is valid for 2 years and, in case a product is produced in more than one plant, each plant will need to be audited by ANVISA. The renewal after two years is a self-inspection report. ANVISA will reinspect the facilities periodically to confirm ongoing compliance (4 years), unless there is a non-conformity in the self-report, which may cause ANVISA to re-inspect earlier. Nowadays, the estimated time to obtain the GMP certificate is around 18 months.

6.5. OTHER CERTIFICATES There are some additional certificates required for registration purposes: For the registration of electro medical devices (equipment), the Certificate of Electrical Conformity (according to IEC 60601 series) issued by Brazilian certifying bodies accredited by the National Institute of Industrial Metrology (INMETRO) is required. It must be maintained either through annual inspection or lot testing.

Products requiring this additional certification can only start their official product registration with ANVISA once the INMETRO certificate has been issued.

Product registration in Brazil does not imply acceptance by the SUS, the public health system. But only products registered at ANVISA may be submitted for inclusion. CONITEC (the National Commission for the Incorporation of Technologies in the SUS) will evaluate efficacy and safety criteria, but also the cost effectiveness and budgetary impact of a new therapy versus existing therapies. After submission of a funding request, CONITEC has to make a recommendation within 180 days (extendable for an additional 90 days). Following its decision, the new technology has to be made available within another 180 days. Indeed, health councils at state and municipal level still have to approve it.

Companies should also apply, apart from the registration with ANVISA, for registration of their trademarks and patents with the National Industrial Property Institute (INPI). This can be done through a local legal firm and will prevent companies from having trademark issues in the future.

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7. Distribution In many aspects, the decision about market access may not significantly differ from any other market entry.

There are however some peculiarities that you should be aware of: some related to the product – medical devices, others related to the Brazilian market.

Brazil is a country with continental dimension. The main industrial and commercial areas of the country are located in the southeast region (triangle between São Paulo, Rio de Janeiro and Belo Horizonte), where about 42% of the population is concentrated and the incomes are higher in general. But also the regions of Curitiba, Florianopolis and Porto Alegre in the south, as well as Salvador and Recife in the northeast are important. Due to its size and regional differences, it may be challenging to cover the entire territory with a single distributor.

The next two chapters provide a brief discussion of the different options for a market access and give an overview about important aspects to be considered when selecting a distributor and local presence. It has been written with the collaboration with the Swiss - Brazilian Chamber of Commerce and selected SGE certified experts active in Brazil. Furthermore, some features to be aware of when entering partnership agreements are outlined.

7.1. OPTIONS There exist several options to register and commercialize medtech products in Brazil: Hosting company + importer/distributor The importer/distributor acts as a service provider at the Swiss exporters’ expense. Such a company charges fees and full cost to register the products, and subsequently a fixed monthly fee for the hosting service, regardless of whether products are imported or not. The hosting company does not participate in the market development and generally does not have a commercial interest. Market development is fully assumed by the importer/distributor, and if the Swiss exporter is not satisfied with the performance, the owner of the registration can change the local distributor at any time without re-registering the products by instruction of the Swiss exporter.

Considerations: This model is considered to be safe but expensive for the Swiss exporter, but may be less attractive to the local importer/distributor. Most of Swiss small and medium size companies have chosen this approach to the market.

License-holding importer/distributor This option can be considered as the most common one. The Swiss exporter selects a high profile importer/distributor and then signs a distribution contract with this company. The importer takes care of the registration process and will share the respective cost with the Swiss company or pay them in full in exchange for discount on the products. It is quite common, that this importer and or distributor may engage a trading company or service provider to import the goods due to a missing import license of the direct partner.

In order for the partnership to be successful, a win-win situation must exist. Changing the importer/distributor in that case would mean to fully re-register the products at ANVISA and to cancel the exclusivity the exporter may have granted by contract.

Considerations: This model is trust-based and consequently less safe for the Swiss exporter. It may require monitoring more closely the local partner and chose a local partner that has a broad regional reach within the territory. In case of discontent, products may lose registration and face out of market situations.

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

39

Local manufacturer The Swiss exporter searches a local manufacturer of medical devices with the necessary technical competences and market knowledge. This local manufacturer will act as an importer/distributor for the product line and will register, import and commercialize it in Brazil. The local partner may have a proper interest in complementing its product range, and may be able to deliver after-sales and maintenance services. A marketing attention gap may exist between own vs. licensed products. At the same time the local manufacturer may be inclined to come up with an own version of the products and therefore launch an own copy of the high priced imported product. A high degree of trust and a well-reasoned cooperation agreement are necessary.

Considerations: The model is not frequent in first market entries for Swiss Exporters. It may be the result of a long-term distribution collaboration whereas this leads to higher involvements and hence to a production partnership for the local market.

Own subsidiary This strategy requires a great amount of time and investment, if the Swiss exporter can rely on the potential of its products in the Brazilian market and has the opportunity to invest significantly; this is undoubtedly the best solution on a long-term basis.

The expected time frame considers 18 months to be ready for commercialization (documentation process): around 12 months to create the company and obtain the adequate AFE authorizations from ANVISA, adding afterwards the ANVISA certification timelines. Timeframes may vary from location and choice of consulting assistance. Generally the involved time will support the recruiting and training process for the local team, and establishment of the local presence.

An alternative to shorten access-to-market is the acquisition of a local player or competitor with all ANVISA certifications, trained and experienced staff, loyal customers, and experience of the local market dynamics.

Considerations: This model is not suggested for first market entries to Swiss Exporters. It may be considered a long-term solution and a consequence of production and distribution partnerships which have resulted in significant business and a local brand presence.

7.2. SELECTION OF DISTRIBUTORS When selecting a distributor, the following criteria should be taken into account: Regulatory requirements on distributors Holding an operation permit (Autorização de Funcionamento de Empresas, AFE) issued by ANVISA is a necessary but not the only criterion to be a local partner. Each AFE corresponds to very specific activities and product groups. To work with the Swiss exporters products, the distributor must have the AFE to conduct any activity needed, e.g. to import, pack, repack, store, forward, export, distribute, or sell medtech products. It is therefore important to make sure that this condition is fulfilled before starting negotiations. Some actors may argue that it takes little time for them to extend an AFE, but it is recommended to choose partners, which have a track record with AFE documentation. At the same time, importing companies will ideally possess an import license, which grants them the right to import goods into Brazil. Furthermore it is important to check whether the local partner had any injunctions from the local health authorities due to bad management or neglected practice.

Sales force Sales force is a criterion that must be carefully evaluated in this local context. Brazil is a huge country and an adequate sales force is required to reach all decision makers in strategic regions. Adequate sales force means a good national coverage, skilled and trained people, but also an adequate marketing to interact with all the targeted customers spread all over the country. There is no ideal size, but a good coverage of the South and Southeast regions (the States of SP, RJ, MG, ES, PR, SC, RS) is essential.

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Access to market / Network / Reputation Most Brazilian distributors may have short-term business concerns and may therefore not always be willing to dedicate the necessary time and efforts to develop new markets to the detriment of their current market shares. Ideally, the commercialized product lines are complementary, the distributor is well established in the market, already disposes of a strong and reliable network, and has a good reputation in the area. In addition such a partner may also have dealt with other international brands and is familiar in commercializing high price products to key clients. These qualifications may considerably influence the return on investment, which can usually be expected after a period of not less than three years.

Participation at trade fairs and congresses Presence and investment in fairs and congresses is essential. Admittedly, with the rise of Brazils attractiveness, they have become more and more expensive. It is therefore important to focus on the most specialized and relevant ones. When all the key opinion leaders and specialists of the indication area meet to attend conferences and want to discover new products and to connect, the local partner will be able to close sales as well as position the company as key leader in an innovative and new technology throughout the medical congress.

See chapter 8.2 for a trade fair overview.

After-sales services No Brazilian company will purchase imported goods without a reliable guarantee for after-sales and maintenance services. In almost all cases, this means setting up and running local after-sales and maintenance services, as purchasers will not take the risk to stop production or operations because spare parts or services missing or not having been imported. The local partner must therefore also have a good reputation for aftersales service, personalized and well trained SAC (Brazilian hot line 0800), quality, reliability and punctuality in repairs, etc. The image of the imported product is highly dependent on this service as customers expect imported goods, due to their premium price, to offer high class and fast service.

Strategic convergence Strategic convergence is probably the most important of all criteria. This requires a good and common understanding of the market, a shared business vision but also motivation and good will shared with the local players. A good partner must have a strong desire to work with the imported products, the same ambition, the same vision and preferentially a size to cover most of the countries strategic cities.

It is important to note, that in the recent years, many international small and medium size players from abroad have entered the market. This movement has required local partners not only to open for such new business models and invest in their international attractiveness, but has also given them the liberty of choosing with whom they would like to work with. This situation has increased the bargaining power of local partners vis-Ă vis their international partners and may require the Swiss exporter to analyze long-term development options (joint ventures, acquisitions) in terms of increasing attractiveness to local business partners.

7.3. PARTNERSHIP AGREEMENTS Partnership agreements are essential to start and develop a solid relationship. There are some specificities of the Brazilian law that companies should be aware of, such as the non-recognition of foreign court decisions on contracts executed in Brazil. The contract must be rigorously analyzed and all the clauses have to be discussed with the local partner. It is essential to set precise objectives and to pay attention to termination and exclusivity clauses. For instance, exclusivity must always be conditioned to the achievement of specific objectives within a specific time, and the contract must stipulate the conditions for loss of exclusivity. However, the contractual relationship also depends on the mutual trust and the frequency and quality of contacts. It is therefore recommended to build a personal relationship with the Brazilian distributor, to consider the Brazilian market as a new frontier for the business where experiences made in other parts of the world cannot necessarily be repeated or used as ideal model. For any contractual relationship with a local partner the Swiss Business Hub Brazil suggest to consult a lawyer which is familiar with the Swiss and Brazilian law in order to consider country specific aspects. At the same time this legal advice shall also take into consideration the registration process and validation process for local products and the registration holder rights, in case of termination.

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8. Marketing 8.1. GENERAL REMARKS Personal relationship is an essential element of business in Brazil. Sometimes personal contacts count more than a convincing business plan and may open doors or facilitate contact with new business partners. In order to create these relationships the foreign company needs to invest time (and money) in building such a network, visiting business partners in Brazil and in supporting the brand building activities with the local partner.

8.2. TRADE FAIRS A participation in a trade fair or congress is highly recommended for newcomers in order to obtain market information, get to know the market potential for their products, and receive feedback from potential customers, representatives and distributors. Fairs or congresses also give an impression of the local and international competitors, as most of them will be represented at the same event. The trade fair participation may be an ideal first step to understand the market. The Swiss - Brazilian Chamber of Commerce (Swisscam) regularly organizes trade fair participation and Swiss pavilions for Swiss exporters interested in participating under this Swiss umbrella presence. For more information consult www.swisscam.com.br/fairs1.html.

It is important to note, that products not registered with ANVISA are not allowed to be imported for trade fair purposes and may require a formal permission from ANVISA in order to import and showcase such products.

Equipment as well as samples may be imported for temporary and trade fair use, but it is required for the product to exit the territory after the grace period has finished. If such products are sold within the territory a formal registration and nationalization process is required.

The biggest trade fairs of Latin America for companies of the medtech sector are Hospitalar (healthcare) and CIOSP (dental).

Swiss Pavilion at Hospitalar 2013

Source: Swisscam

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Hospitalar – International Fair of Products, Equipment, Services and Technology for Hospitals, Laboratories, Pharmacies, Health Clinics and Medical Offices, São Paulo 19-22 May 2015, 22nd edition, Expo Center Norte, São Paulo, Brazil www.hospitalar.com/ingles/index.html and http://www.swisscam.com.br/manager/hospitalar_en.html The Hospitalar fair takes place annually in May and is the most recognized forum by all key players and all segments of the industry – manufacturers of products, equipment, services and technology for hospitals, laboratories, pharmacies, health clinics and medical offices.

Visitors come from all over the world, but mainly from Latin America. Amongst them are physicians, nurses, directors and managers of hospitals, clinics and laboratories, hospital product manufacturers, distributors and representatives. In 2014, the fair had 1’250 exhibitors and about 90’000 visitors. It divides in different sections and smaller fairs. Diagnóstica, Hospfarma, Digital Health, CompoHealth (manufacturing of health care products) and Expo Enfermagem (nursing) are all part or linked to the mega event. Reabilitação (rehabilitation) became an independent trade fairs in 2012. The Hospitalar is held in cooperation with MEDICA – World Medical Fair, Germany.

The Hospitalar Trade show 2015 will feature a Swiss Pavilion and also an additional official side program to support Swiss exporters to enter this market. The Swiss Business Hub and Swisscam Brazil will arrange tailor made company meetings, industry panels and individual roadshows with local stakeholders, industry associations as well as regional entities interested in learning about the Swiss Medical Technology landscape. For further information please consult Switzerland Global Enterprise and the Swiss Business Hub Brazil.

CIOSP – International Dental Meeting, São Paulo 22-25 January 2015, 33rd edition, Expo Center Norte, São Paulo, Brazil www.ciosp.com.br and http://www.swisscam.com.br/manager/ciosp.html The São Paulo International Dental Meeting, annually held on the last weekend in January, is considered the second largest event worldwide in terms of visitors today. With 200 exhibitors and about 60’000 visitors every day, the trade fair attracts dentists, dentures technicians, dental hygienists, assistants and other professionals from Brazil and Latin-American countries in order to get to know new products and discuss important topics of international interest.

The CIOSP Trade show 2015 will feature a Swiss Pavilion and also an additional official side program to support Swiss exporters to enter this market. The Swiss Business Hub and Swisscam Brazil will arrange tailor made company meetings, industry panels and individual roadshows with local stakeholders, industry associations as well as regional entities interested in learning about the Swiss Medical Technology landscape. For further information please consult Switzerland Global Enterprise and the Swiss Business Hub Brazil.

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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Other relevant fairs11 Reatech – International Fair Rehabilitation, Inclusion and Accessibility (about 26’000 visitors in 2014) 9 to 12 April 2015, Imigrantes Exhibition and Convention Center, São Paulo www.reatech.tmp.br

Feira Reabilitação – 13th International Fair of Products, Equipment, Services and Technology for Rehabilitation, Prevention and Inclusion (about 100 exhibitors and around 5’000 visitors) 7 to 9 November 2015, Expo Center Norte, São Paulo www.reabilitacao.com/ingles/

MedTec MD&M – Medical Design & Manufacturing Brazil (about 75 exhibitors and 5’000 visitors in 2013) Dates not yet known, Transamérica Expo Center, São Paulo www.mdmbrazil.com.br

8.3. OTHER PROMOTION CHANNELS Once the company has established contacts and is setting up its business in Brazil, the next step to promote the products to key clients is participating at the congresses organized by the specific medical organizations.12 Normally of smaller size, the events are held in hotels or conference centers and give the company the opportunity to talk directly to the physicians. It is common that local distribution partners will organize Key Opinion Leader events before or after the trade fair in order to showcase products and concepts to their client base.

Another important promotion channel for the medtech industry is to involve local professionals in research and development (R&D) projects. Work in cooperation with universities or special R&D centers, organizing workshops and/or introducing the products to future professionals has become common. The interest in such partnerships is high according to the association of medical device industry ABIMO which in their recent CEO study reflected that today Brazilian companies lack understanding and clarity on research possibilities and partnership with local universities, paired by a lack of applied science programs at these institutions. Therefore cooperation in this field promoting new technological development through scholarship with the intention to do further research, or to stimulate innovation may be an interesting strategy. Such academic-industrial partnerships may be established either through direct contacts with local universities, R&D centers, specialists in the field of application or through indirect contacts, making use of networks like medical associations, business associations, or similar.13 It is important to note in this context that Switzerland and Brazil have a signed agreement on research and innovation in order to foster academic exchange in this area.14 Consequences of this agreement may support transborder research and position Swiss science and its resulting technology as world-class standards vis-à-vis local institutions and consumers. At the same time, SWISSNEX Brazil as official entity active in this field may assist Swiss exporters and industry in establishing relationships and contacts to Brazilian research and development institutions of interest. For more information about SWISSNEX services rendered through their recently opened Brazilian headquarter in Rio de Janeiro consult www.swissnexbrazil.org/about-2/.

11

The dates and locations may be subject to change. Please check in advance.

12

See website of the Brazilian Medical Association for a list of the associated medical specialties: www.amb.org.br/Site/Home/FILIADAS DA AMB/Socied. de Especialidade/ 13

For further information on selected universities see Appendix 10.2. Selected universities.

14

For more information on research and innovation exchange program visit: http://www.sbfi.admin.ch/themen/01370/01390/01420/index.html?lang=en BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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An additional channel may be the promotion of medical technology products through renowned medical journals and specialist literature. Collaborating with local PR professionals and press agencies active in this field could be a good alternative. For example, the Brazilian medical and dental associations regularly publish journals in order to keep the professionals informed about latest researches and technologies. Most of them also offer space for advertisements, which could be an important tool to present new products to the market and increase visibility and latest product studies to the professional reader. Different indications are addressed in specialized medical publications supporting local opinion leaders in their research for new treatment alternatives. For example the association of plastic surgery publishes the “Revista Brasileira de cirurgia plástica15”, the magazine of the neurology association is the “Revista Neurociências16”.

The umbrella medical association, covering all medical specialties, is: Associação Médica Brasileira (Brazilian Medical Association) Rua São Carlos do Pinhal, 324 | 01333-903 São Paulo www.amb.org.br

Moreover Presence Suisse 17 has funded a medtech industry project lead by the Swiss Business Hub Brazil and its local partners enabling therefore the execution of a promotional campaign aiming at showcasing the Swiss Medtech industry in Brazil. This campaign shall give small and medium size companies from Switzerland the opportunity to position themselves in Brazil and present their technologies and products through an official platform and industry program planned for 2015. The campaign will use local synergies to promote the Swiss Medtech landscape, showing the relevance of the location advantages of Switzerland and its unique ecosystem of companies and their offer whilst opening opportunities to companies to meet local counterparts, industry associations and potential business partners. For more information and participation details, please contact the Swiss Business Hub Brazil or Switzerland Global Enterprise.

15

http://www.scielo.br/scielo.php?script=sci_serial&pid=1983-5175&lng=en&nrm=iso.

16

http://www.revistaneurociencias.com.br.

17

http://www.eda.admin.ch/eda/en/home/dfa/orgcha/gensec/prs.html

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9. Summary and conclusion The Brazilian medical equipment market has shown strong growth in the past years. Its mere size and growth potential make it an interesting market to consider in internationalization strategies for Swiss exporters. But there are significant challenges that exporting companies should be aware of.

The present study in its second version discusses various market characteristics, including market size and growth perspectives (chapter 2), the competitive situation (chapter 3), the Brazilian health system (chapter 4), local clients (chapter 5), the newest regulatory aspects (chapter 6) and potential distribution channels and marketing options (chapters 7 and 8). Conscious of these topics Swiss companies should be able to better assess the opportunities and threats, strengths and weaknesses of this market and evaluate carefully the most appropriate market entry strategies. The below mentioned SWOT Analysis depicted in Figure 32 shall summarize the most important characteristics of aforementioned chapters.

The main strengths of the market are its size and potential for further development. Brazil has the largest economy and medical devices market in Latin America. In 2013, its volume was estimated at US$ 5.9 billion. The economic development of the last decade in Brazil has led to an increase in formal jobs, a drop in unemployment rate and higher average income. Private health plan coverage reached 50.3 million Brazilians today (about 1/4 of the population) representing a hike of 56.7% between 2003-2013. According to Espicom Business Intelligence, growth will continue strong in the next five years regardless of the slower general economic development expected to occur during the next years. The public healthcare policy and the huge demand in waiting will continue boosting the consumption of health care services; private healthcare coverage is likely to continue expanding and increasing demand for quality will induce investment and adoption of modern technology.

Demographic ageing, and civil and chronic-degenerative diseases will become more and more frequent demanding new treatment solutions. At the same time, local manufacturers and potential partners for Swiss companies are looking for research and development projects, which will help them to create and launch new technologies for the local market. This need may be considered as potential opportunity in creating cross border scientific cooperation between Swiss exporters and the local industry.

Figure 32: Strengths, weaknesses, opportunities and threats (SWOT) of the Brazilian medtech market

Strengths

Weaknesses

Large population, biggest Latin American market

Geographic size of the country

Public healthcare system with wide avenues of access

Uneven healthcare provision

Growing private health insurance coverage

Low per capita spending on medical products

Reasonably comprehensive healthcare system in more developed regions

Competent local industry Strong presence of the big multinational players

High awareness for physical appearance and well-being

High level of bureaucracy

Increasing demand for quality

High taxes and import duties High cost for qualified personnel/services

Opportunities Adoption of new healthcare technologies

Protectionist industrial policy

Regional markets development outside state capitals

Devaluation of the Brazilian Real

Government initiatives to encourage domestic production

High indebtedness

Weak economic growth

Regulatory developments

Shortage of trained medical personnel

Trade integration

Importance of the local partner

BRAZILâ&#x20AC;&#x2122;S MARKET FOR MEDTECH PRODUCTS

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Threats

On the other hand, the challenges faced when entering the Brazilian market should not be underestimated.

Geographical and social disparities in health care provision are evident. These differences and the geographic size of the country make it difficult to cover the entire territory with a single approach and demand flexibility and multi partner strategies in some cases. The high level of bureaucracy and the complex tax and duties system provoke costs and difficulties, which need to be managed continuously. The cultural distance may seem low, but should not be underestimated by Swiss entrepreneurs keen on managing such complexity. Qualified and reliable services are costly local competition is picking up speed and may be considered an important challenge for new entrants, while Brazil may no longer be considered as low cost country.

Furthermore, the missing mutual recognition of foreign product registration for healthcare products is a considerable challenge for international players paired by the lack of free trade agreements on international levels. At the same time, product registrations through the national health authority (ANVISA) can only be effected in the name of company located in Brazil and already certified by ANVISA, which reduces flexibility and agility to serve the market as international player. This makes the local partner and the respective selection process very important and increases uncertainty and risk. Before entering into a partnership agreement, criteria like sales force, after-sales services and strategic convergence need to be considered carefully, and it is recommended to select a scheme that can be scaled up depending on market development. Moreover, depending on the classification of the product in question, an on-site GMP inspection is necessary and needs to be planned and financed carefully. Overall agility and flexibility are of paramount importance for long-term success.

Moreover, Brazil has a growing national medical equipment industry, which is becoming competitive in selected segments, in particular for dental products and hospital consumables. Today still more than 50% of Brazil’s medtech demand is supplied by imports (US$ 3.0 billion in 2013). At the same time, the local import taxes have forced many multinational companies to consider local production facilities, enabled by acquisition of medium-sizes local manufacturers or by engaging in greenfield investments.

Hence, macroeconomic threats cannot be forgotten. The Brazilian economy has entered a technical recession in the second quarter of 2014. Economic stimulation measures are exhausting. Many consumers are heavily indebted, and public expenditures are high. The exchange rate shows strong fluctuations – impaired by the US-FED monetary policy and the proper high interest policy. But there are also many opportunities – in the

Be locally present and create personal relationships with partners, key opinion leaders and multipliers Evaluate well, then invest determined in structures that serve regional requirements Plan enough time and resources, don’t expect rapid success Offer high quality sales and after-sales services to customers and key accounts Start in urban areas and create a sales-network which is scalable and may be expanded regionally Convince doctors with quality and technological advantages that justify price premium Bank on Swissness and Innovation enabled by your products and services Evaluate science and research cooperation between local and international partners as business development strategy. more developed regions as well as outside the state capitals.

For companies considering a successful market entry and business relationships with/in Brazil the Swiss Business Hub Brazil generally recommends to consider the following points in the project planning phase

Switzerland Global Enterprise, the Swiss Business Hub in Brazil and its associated partners are happy to assist you in your successful Brazilian endeavor.

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10. Appendix 10.1. IMPORTS OF MEDICAL DEVICES (DETAILED TABLE)

Category

NCM18

Description 2006

2007

2008

2009

2010

2011

2012

2013

Consumables (US$ million)

Wound care products

%

300510

Medical dressings (adhesive)

7.67

9.35

10.19

15.16

18.31

20.04

25.35

28.58

22.90

300590

Medical dressings (non-adhesive)

5.02

7.04

9.31

11.12

15.85

32.75

36.02

34.37

29.86

300610

Sutures, sterile, surgical & dental goods

10.59

12.49

13.25

13.59

15.59

19.31

22.92

33.54

20.41

23.29

28.88

32.75

39.87

49.75

72.10

84.29

96.49

24.12

901831

Syringes (with/without needles)

13.76

23.37

24.63

33.33

43.61

71.62

50.72

59.42

19.26

901832

Tubular metal needles/ needles for sutures

17.23

21.73

23.01

24.58

24.07

28.61

37.38

41.54

12.54

901839

Other needles, catheters, cannulae etc

Total

Syringes, Needles & Catheters

Total

Others

96.77

128.61

154.52

167.61

214.64

243.69

288.38

339.70

17.06

127.77

173.70

202.16

225.53

282.33

343.92

376.48

440.66

16.86

1.08

1.61

1.84

2.00

3.18

4.99

6.30

6.81

29.91

300620

Blood-grouping reagentes

300650

First-aid boxes & kits

0.15

0.23

0.33

0.17

0.25

0.08

0.07

0.05

-30.31

300691

Ostomy appliances

7.40

7.42

7.47

9.51

11.97

18.46

15.85

18.11

19.38

401511

Surgical gloves

Total

Category

NCM

4.17

3.03

3.57

1.61

5.08

2.14

4.64

4.39

4.24

12.80

12.29

13.21

13.29

20.48

25.67

26.86

29.37

17.33

Description 2006

2007

2008

2009

2010

2011

2012

2013

Diagnostic Imaging (US$ million)

Electrodiagnostic Apparatus

%

Electrocardiographs

1.37

1.45

2.33

1.74

3.28

3.23

2.57

2.40

0.57

901812

Ultrasonic scanning apparatus

75.35

86.23

95.97

93.00

109.61

114.83

100.67

110.50

2.86

901813

Magnetic resonance imaging apparatus

74.51

99.26

118.14

94.75

137.23

136.50

113.97

126.81

1.43

901814

Scintigraphic apparatus

901819

Other electro-diagnostic apparatus

7.05

1.49

2.97

11.14

22.42

27.34

30.89

21.67

48.79

49.09

67.23

86.18

91.10

160.99

131.83

123.71

147.80

11.39

207.37

255.65

305.60

291.72

433.53

413.74

371.80

409.18

6.01

Computed tomography apparatus

47.72

77.33

96.54

81.86

91.33

99.27

81.59

73.23

-5.38

902214

Other medical X-ray apparatus

34.12

43.28

71.80

80.43

83.34

105.86

78.80

88.71

4.32

902221

Medical alpha beta, gamma ray apparatus

7.40

11.56

12.97

4.86

35.48

14.74

24.05

26.82

15.63 0.81

902212

Total

Imaging Parts & Accessories

CAGR 2008-2013

901811

Total

Radiation Apparatus

CAGR 2008-2013

89.25

132.17

181.31

167.15

210.16

219.87

184.44

188.77

300630

Contrast media

17.14

33.24

36.97

28.23

40.82

44.14

49.29

41.87

2.52

902230

X-ray tubes

20.46

20.65

19.23

21.63

22.20

27.26

28.10

24.14

4.65

902290

Parts & accessories for radiation apparatus

20.63

19.92

23.90

25.68

35.15

43.15

44.37

46.77

14.37

370110

Medical X-ray film (flat)

39.42

47.04

67.55

69.85

77.34

73.87

76.05

83.88

4.43

18 The Nomenclatura Comum do Mercosul (NCM) is the convention adopted in 1995 by Uruguay, Paraguay, Brazil and Argentina to categorize goods for import and export. It is based on the common international standard, the Harmonized Commodity Description and Coding System, also known as the Harmonized System (HS).

BRAZILâ&#x20AC;&#x2122;S MARKET FOR MEDTECH PRODUCTS

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370210

Medical X-ray film (rolled)

Total

Category

NCM

31.87

34.48

18.58

18.18

15.81

14.12

17.56

12.99

-6.91

129.53

155.33

166.24

163.57

191.31

202.55

215.36

209.65

4.75

2006

2007

2008

2009

2010

2011

2012

2013

Description

Dental Products (US$ million) 901841 Dental Capital Equipment

% Dental drill engines

0.63

1.00

0.85

1.07

1.61

3.53

3.20

3.50

32.88

902213

Dental X-ray apparatus

2.06

2.44

3.20

5.17

10.45

19.18

16.05

16.14

38.21

940210

Dental & similar chairs (incl. parts & accessories)

Total

Dental Instruments & Supplies

0.12

0.34

0.76

0.67

1.40

2.00

3.11

2.78

29.64

2.81

3.77

4.80

6.90

13.46

24.70

22.36

22.42

36.08

300640

Dental cements & other fillings

11.08

14.7

18.07

16.44

19.59

22.83

27.34

22.28

4.28

901849

Other instruments & appliances used in dentistry

6.97

10.62

12.91

13.59

16.35

22.89

28.10

35.15

22.18

902121

Artificial teeth

0.73

0.73

1.71

0.72

1.37

1.26

1.85

2.18

4.88

902129

Other dental fittings

Total

Category

NCM

4.38

5.28

5.66

5.69

7.73

10.74

13.01

16.76

24.26

23.16

31.32

38.35

36.44

45.03

57.71

70.30

76.37

14.77

Description 2006

2007

2008

2009

2010

2011

2012

2013

Orthopedic & Prosthetic Devices (US$ million) 902110

Splints & other fracture appliances

Artificial joints

902131

Artificial joints

20.41

Other artificial body parts

902139

Other artificial body parts

40.31 100.38

2006

Total

NCM

39.67

57.5

81.74

79.79

103.41

123.17

34.89

35.22

29.68

36.23

48.44

46.88

74.89

93.34

115.67

122.91

139.27

191.85

202.80

255.31

294.52

2007

2008

2009

2010

2011

141.65

154.56

13.59

51.23

69.10

14.43

151.56

149.07

14.76

344.43

372.74

14.21

2012

2013

Description

Patient Aids (US$ million)

Portable Aids

%

902140

32.67

34.15

41.49

38.65

51.44

62.61

65.26

65.34

9.51

902150

Pacemakers, except parts & accessories

28.74

34.67

34.21

38.17

42.33

44.09

48.80

48.21

7.10

902190

Other aids for the disabled

115.56

151.78

165.12

192.23

222.40

245.09

283.30

260.46

9.54

176.98

220.60

240.81

269.05

316.17

351.79

397.36

374.01

9.20

901910

Mechano-therapy apparatus

901920

Therapeutic respiration apparatus

901820

Ultra-violet or infra-red ray apparatus

Total

Category

NCM

1.42

2.79

4.14

4.85

7.89

13.42

17.29

17.08

32.76

22.09

29.70

45.94

44.71

130.40

69.80

80.70

107.35

18.50

5.19

5.18

10.24

7.85

13.52

16.84

24.89

31.89

25.50

28.70

37.67

60.33

57.41

151.80

100.06

122.88

156.32

20.98

2010

2011

2012

2013

Description 2006

2007

2008

2009

Others (US$ million)

Others

CAGR 2008-2013 %

871310

Wheelchairs, not mechanically propelled

0.21

0.35

0.26

0.44

0.61

1.11

2.22

3.26

66.26

871390

Wheelchairs, mechanically propelled

0.45

0.29

0.49

0.53

0.71

0.93

1.58

1.67

27.89

940290

Other medical, surgical, dental furniture

10.53

11.00

33.71

23.02

51.33

29.97

58.26

48.93

7.73

BRAZILâ&#x20AC;&#x2122;S MARKET FOR MEDTECH PRODUCTS

49

CAGR 2008-2013

Hearing aids, except parts & accessories

Total

Therapeutic Appliances

CAGR 2008-2013 %

Splints & Other fracture appliances

Category

CAGR 2008-2013

841920

Medical, surgical sterilisers

901850

Ophthalmic instruments & appliances

901890

Other instruments & appliances

Total

Total Medtech Imports (US$ million)

1.16

2.36

5.98

3.38

5.26

6.05

4.85

4.28

-6.48

14.38

16.84

21.49

23.36

35.31

47.10

53.72

59.74

22.69

127.78

186.75

257.63

263.01

345.55

403.32

466.04

524.72

15.29

154.51

217.6

319.57

313.73

438.77

488.48

586.67

642.61

14.99

1076.6

1408.3

1757.0

1787.5

2408.1

2595.1

2803.3

3018.6

11.43

10.2. ADDITIONAL INFORMATION Major events and publications Revista HOSP

www.revistahosp.com.br

Professional journal

Saúde Business 365

saudebusiness365.com.br

Online Information Platform

Fornecedores Hospitalares (FH)

www.saudebusiness365.com.br/revistafh Professional journal

Hospitalar São Paulo

www.hospitalar.com.br

Trade fair

CIOSP

www.ciosp.com.br

Trade fair

Reatech

www.reatech.tmp.br

Trade fair

Feira Reabilitação

www.reabilitacao.com

Trade fair

MedTec MD&M

www.mdmbrazil.com.br

Trade fair

Regulatory agencies ANS, Agência Nacional de Saúde Suplementar (National Regulatory Agency for Private Health Insurance and Plans): www.ans.gov.br ANVISA, Agência Nacional de Vigilância Sanitária (National Agency of Sanitary Surveillance): portal.anvisa.gov.br CFM, Conselho Federal de Medicina (Federal Council of Medicine): portal.cfm.org.br CNS, Conselho Nacional de Saúde (National Health Council): conselho.saude.gov.br CONITEC, Comissão Nacional de Incorporação de Tecnologias (National Commission for the Incorporation of Technologies): www.saude.gov.br/conitec Industry associations ABIMED, Associação Brasileira da Indústria de Alta Tecnologia de Equipamentos, Produtos e Suprimentos Médico (Brazilian Association of High Technology Industry Equipment, Products and Medical Supplies): www.abimed.org.br ABIMO, Associação Brasileira da Indústria de Artigos e Equipamentos Médicos, Odontológicos, Hospitalares e de Laboratórios(Brazilian Medical Device Manufacturers Association ): www.abimo.org.br ABM, Associação Médica Brasileira (Brazilian Medical Association): www.amb.org.br ABRAMED, Associação Brasileira de Medicina Diagnóstica (Brazilian Association of Medical Diagnostics): www.abramed.org.br ANAHP, Associação Nacional de Hospitais Privados (National Association of Private Hospitals): http://anahp.com.br/ CBDL, Câmara Brasileira de Diagnóstico Laboratorial (Brazilian Chamber of Laboratory Diagnostics): www.cbdl.com.br

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

50

Selected universities UFRGS – Federal University of Rio Grande do Sul, www.famed.ufrgs.br/index.php Considered the fourth best university in Brazil in the medicine area, UFRGS is situated in Porto Alegre, capital of Rio Grande do Sul (RS) state. The university develops research programs through the National Council of Scientific and Technologic Development (CNPQ) and other financing projects.

One of the projects, made in association with a public hospital, developed technology for video surgeries , with the help from the Informatics Institute of the university.19

UFRJ – Federal University of Rio de Janeiro, www.medicina.ufrj.br/ UFRJ is one of the big players regarding research projects in the academic area. The university counts with approximately 670 post-graduate students, many involved in projects in the areas of surgical sciences, orthopedics and medical clinic.

UNICAMP Located in Campinas, technologic pole close to São Paulo city, UNICAMP is the leader in Brazil for academic researches and patent registration per capita. This is also true for the university’s medicine area.

USP – University of São Paulo, www.fm.usp.br/, www.fmrp.usp.br/ Considered the best university of Brazil for many consecutive years, USP stands up for its name also in the medicine area. The Medicine Faculty (FM) is a cluster for high-end R&D, making use of the infrastructure of excellence inside it. The university is linked to one of the most renowned institutes of medical sciences in Latin America, the Hospital das Clinicas. FM has developed several medical devices for the most varied purposes.20 USP has one unit in Ribeirão Preto (SP), where many factories of national medical devices companies are installed. This boosts the academic production through public-private projects and drives scientific development.

19

http://www.ufrgs.br/ufrgs/noticias/projeto-da-ufrgs-desenvolve-tecnologia-para-videcirurgia.

20

Low-cost digital hearing aid: http://www.usp.br/agen/?p=17808; Knee prosthesis: http://santaportal.com.br/5302-hospital-das-clinicasdesenvolve-1%C2%AA-protese-de-joelho-totalmente-nacional; Portable and low cost device to detect dengue in 20 minutes: http://www.94fmdourados.com.br/noticias/saude/pesquisa-da-usp-desenvolve-aparelho-que-detecta-dengue-em-20-minutos.

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

51

10.3. ANVISA REGISTRATION TIMELINES The below mentioned graphs and time estimates are simplifications of the actual registration process and shall serve as general indication about the expected timelines.

Depiction elaborated by Swiss Business Hub Brazil September 2014 in cooperation with Vera Rosas Registros e Legalização, Certified Expert of Switzerland Global Enterprise http://expertdirectory.sge.com/en/search/#!/location/130/.

BRAZIL’S MARKET FOR MEDTECH PRODUCTS

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