Spotlight on Argentina

More than 500 U.S.-based companies concentrated in energy, manufacturing, information technology and financial services operate in Argentina, the second largest South American country by GDP behind Brazil. BONEZONE asked the following professionals for their take on the orthopaedic market in their country:

Maria Cristina Bardelli, Managing Partner, Victhor Implantes
Gustavo Guitelman, Director, LABORATORIOS SL S.A.

In your experience, what unique challenges are faced by companies that do business in the Argentina orthopaedic market? What are the unique advantages?

Maria Cristina Bardelli: Our unique challenges include the following. Attaining sustained Research & Development (R&D) spend is one of the long-term challenges for Argentina’s orthopaedic industry. Without adequate R&D spend, it is very difficult to develop and design new, cutting edge products that would result in differentiation and sustained competitive advantages. The Argentine market has a relatively small scale which prevents individual companies from spending heavily in R&D. Further, government funding targeting this area is scarce, and policies to promote R&D have been inconsistent. Moreover, there is no concerted effort among privately-held firms to tackle the R&D challenge jointly.

Another challenge facing the industry is the need to increase productivity and reduce costs while keeping up to speed with the price/delivery time/quality demands of a competitive orthopaedic sector. Additionally, we face the challenge of developing flexible production capabilities able to accommodate both sudden surges and slowdowns in demand.

The industry is also facing pricing pressure as a result of market entrants producing very low-priced implants with questionable quality (some of them not even approved by the regulatory body ANMAT), and the Social Security Services looking to offer low-cost implants to its member/patients.

Finally, branding strength remains an obstacle: most Argentine surgeons and hospitals have a strong preference for U.S. and European implants, even though there are available reasonably priced, locally manufactured implants meeting international quality standards and surgeons’ requirements.

Our unique advantages include the following. Argentina’s orthopaedic industry is young and full of growth opportunities over the long term. The industry has a bright future, and producers able to create strategic alliances will be major beneficiaries from this growth.

The market enjoys a vibrant, demographically-driven demand in procedure volume of hip and knee replacements. Further, the opportunity for high-quality domestic manufacturers to gain market share from importers and distributors of U.S. and European implants represents additional growth potential.

The industry also enjoys flexibility and cost competitiveness, which are advantages for internal and external markets.

Finally, the technical expertise prevalent among local, privately-held producers, such as Victhor Implantes, is world-class. This, combined with a relatively small market, results in the possibility of customization and working closely with doctors and patients to develop unique, “tailor-made” solutions.

Gustavo Guitelman: Argentina has some manufacturers of medical devices (mostly joint implants), and hence the market is segmented between “national” and “imported” products. Prices differ substantially. While social security purchases a majority of homemade national products, imported products occupy a relatively small percentage of sales.

Notwithstanding, due to the current exchange rate (Argentine Peso is overvalued), imported products are far more profitable than products made in Argentina. Almost every big player is present in the Argentinian market, so the big challenge is to find “space” in which to get market share.

On the other hand, the market is quite big and it is said that surgeries-per-inhabitant are far greater than other Latin American markets.

Current headwinds affecting U.S. orthopaedic market performance include longer (and more intense) regulatory clearance processes, growing price pressure from hospitals, lower procedure rates in hip, knee and spine, etc. How does the U.S. market situation impact Argentina? How has it affected your business?

Bardelli: Victhor Implantes has not marketed its products in the U.S. as of yet, thus the U.S. market situation does not affect us—or the Argentine market in general—directly. Potentially, a slowdown in the U.S. market could imply that the leading global orthopaedic companies could divert some of their resources from the U.S. and reinvest more aggressively in emerging markets. That would increase competitive pressures across the Argentine orthopaedic industry, but the price advantages enjoyed by top local producers should help mitigate these increases in competition.

Guitelman: As manufacturers, we have not entered the U.S. market, but we are planning to do so during 2013. We are affected in many Latin American markets because U.S. manufacturers are cutting their selling prices almost in every market, thus reducing margins and making competition strong.

What resources have you found to be reliable for Argentina-specific orthopaedic market data, hospital/patient data, implant pricing or any other information that you require to plan for business development?

Bardelli: There is a very limited supply of publicly-available, reliable resources, databases and statistics that Argentine orthopaedic companies can rely on to plan their business development activities, particularly over longer time frames. Macroeconomic conditions and government monetary/exchange rate policies are major drivers—at times positive and at times negative— which affect strategic planning. Victhor Implantes relies on its own proprietary statistics, metrics and modeling capabilities, developed over the last ten years, to plan business development. Volatile market conditions prevalent in Argentina and other emerging markets result in an added degree of uncertainty, which we have learned how to cope with over the different stages of the economic cycle.

Guitelman: It is very difficult to find statistical data. The best source to get an idea on pricing would be to see social security tenders, Comprehensive Medical Attention Program (PAMI).

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