Over the last year, the medical devices industry has faced challenges from currency depreciation to budget cuts that have forced it to make the most of the Mexican manufacturing industry’s capabilities
In November 2016, the Mexican peso became a victim of the US elections. Before voters went to the polls, the already-weakened currency was at MX$18.5 per dollar. By the time the votes were counted, the peso had sunk to MX$20.74, a historic low against the US currency that pushed up prices of imported goods. Coupled with lower oil prices that forced government budget cuts, medical devices companies have increasingly turned to the private sphere to support their bottom lines.
As the government trimmed its budget, it also offered lower prices for products. In 2016, the Ministry of Finances and Public Credit rolled out a series of cuts, slashing its budget in February by MX$132 billion (US$7.3 billion), in April by MS$175 billion (US$9,7 billion) and in September by another MX$239 billion (US$13.2 billion). Among the top targets were health and education, which had a direct impact on the purchasing capacities of health institutions. The consolidated purchase system has helped the government to continue purchasing supplies and drugs while saving money. Since 2013, IMSS has saved MX$14 billion (US$777 million) through the scheme, said IMSS Director General Mikel Arriola in 2016. Companies have few qualms about the system, believing it a good government initiative; however, they say the purchases should be oriented toward integral acquisitions by therapeutic areas instead of individual products that, sold at low prices, are not profitable.
“The prices are also low so they are not sustainable in the long term. We can offer those prices for one year but not several years running, especially with the depreciation of the Mexican peso against other currencies. This is not sustainable and endangers quality,” said Martín Ferrari, Director General of Dräger Mexico. Ferrari says the first step should be for the government to understand the value of complete solutions and then change the model to purchasing based on specific therapeutic needs. He believes that government purchases of equipment from different brands for a surgical room will then require different maintenance teams, different guarantees and different providers. If it buys integral solutions, there will be more guarantees, he believes.
Despite the economic difficulties, foreign companies are tapping into Mexico’s strong potential as a base for outsourced manufacturing of both medical devices types classified by CANIFARMA: Supportive Products for Health (PAPs) and Reactive and Diagnosis systems (RSD). According to CANIFARMA, PAPs are widely produced in Baja California and, based on ProMéxico data, the northern state has become a cluster for many international brands, mostly from the US and Europe, attracted by low operating costs in a strategic location and quality human capital for manufacturing. In fact, the US provides 70 percent of the firms based in Tijuana and Tecate and 86 percent of the top investors, according to ProMéxico.
Mexico generates US$8 billion in medical devices exports and 92 percent of those exports go to the US, says Edgar Romero, President of AMID. Broken down by product, Mexico is the third global exporter of tubular suture needles and the fourth for instruments and devices for medicine, surgery, dental and veterinary health, based on ProMéxico data.
According to INEGI Mexico is home to approximately 400 exporting companies, most of them focused in the manufacturing industry. INEGI data also shows there are more than 2,500 economic units specialized in medical devices in Baja California, Tamaulipas, Sonora, Nuevo Leon, Mexico City, Jalisco, State of Mexico and Coahuila. In addition, ProMéxico predicts that by 2020 the production of medical devices in Mexico will reach US$25 billion.
Adding to Mexico’s attractiveness is the pool of human resources available to companies looking to establish manufacturing sites in Mexico. According to Global Health Intelligence, more than 4,000 people are employed in the Baja California manufacturing hub. US-based health technology company Becton Dickinson, which focused on IV devices for drug administration, is among those taking advantage of the country’s talent. “Of BD’s 45,000 global associates, 9,500 are Mexican, or nearly 20 percent. They are distributed throughout our operations in Mexico City, San Luis Potosi, Sonora and Baja California. We export products made in Mexico to the US, Asia, Europe and the rest of Latin America,” says Juan Pablo Solís, Vice President and General Manager of Becton Dickinson Mexico, Central America and the Caribbean.
Mexico’s strategic location, with access to the Latin American markets as well as the US and Canada, is attractive for European companies, such as global supplier of hospital beds Linet Group SE. “To ship beds from the Czech Republic to Chile takes two and a half months. The entire Pacific coast is far from Europe, so a Tijuana plant (which Linet plans to build) would benefit these countries, especially Peru and to some extent Ecuador,” says Mauricio Valero, the company’s Managing Director in Mexico.
The process for approval of medical devices has also improved after COFEPRIS decided to deregulate certain accessories. AMID is responsible for 80 percent of COFEPRIS’ sanitary registers and the association’s President believes the decision to deregulate some items ultimately will lead to more investment. “Deregulating these items is good because COFEPRIS can use its time to check true technological innovations instead of regulating these other products. This will increase investment in innovation because less time needs to be spent on other things,” says Romero.
In addition to local incentives for the medical devices industry, Mexico still has room to boost its position in the outsourced manufacturing sector. ProMéxico's Sector Diagnosis study for the medical devices industry suggests the main obstacles to development are a fragmented and bureaucratic healthcare system, a low expenditure in health per capita and a lack of trained staff in health institutions to use the technology. “The medical devices market in Mexico is underdeveloped, which means there are many opportunities to grow,” says Germán García, Director General of Smith & Nephew, a UK company specialized in wound management and orthopedics.
According to the study Medical Devices Outsourcing Market 2016-2020, the global outsourced manufacturing industry is growing at a compound annual rate of 11 percent. A study developed by Technavio showed that the major reasons for outsourcing are “gaining specialized expertise, harnessing a high supply chain, avoiding issues such as high manufacturing costs and overcoming capacity constraints.”
AMID’s Romero says the government faces the challenge of how to evaluate the new devices and ensure that the most innovative medical devices reach patients. “Now, from releasing a product to releasing its next generation, there are only two or three years and the evaluation system for new products is not used to working with such short time frames. Medical devices account for 70-80 percent of sanitary registrations in Mexico. How to evaluate them and the cost/benefit over time is a new challenge for any government, including Germany and the US. The main challenge is bringing these devices to the country.”