Op Ed: Are Brazil, China and Russia making it Harder for Device Companies to enter their Markets?

Of the thousands of medical device manufacturers assisted by Emergo each year, most are based in North America, Europe and Japan, and will spend whatever it takes to enter those same markets. For most firms, markets such as the US, Canada, Europe and Japan offer the highest potential return on investment in terms of meeting regulatory requirements and commercializing their devices in those regions.

Although emerging economies including Brazil, China and Russia continue to garner industry attention as attractive alternatives to the largest medical device markets, the actual costs and effort required to successfully manage device registration and commercialization in these countries can catch ill-informed foreign manufacturers off guard. Brazil, China and Russia remain secondary markets that require careful evaluation in terms of market potential, reimbursement processes, competition and costs. Based on our experience helping medical device manufacturing clients wanting to enter Brazil, for example, the issue of costs has become more and more salient over the past 24 months.

Why cost? Simply and crucially because regulators in Brazil, as well as China and Russia, have been raising them, significantly, for foreign manufacturers trying to register for sale in these markets.

  • Most recently, Brazil’s finance ministry pushed up Brazilian Good Manufacturing or BGMP quality system certification fee increases to R$108,612 (~US$28,900 / €26,000) from R$37,000 (~US$9,800 / €8,860); ANVISA registration fees for medical devices and IVDs have also increased by 2.5 times their previous rate.
  • In China, regulators also implemented substantial fee increases for imported device registrations and renewals earlier in 2015; Class II registrations with the China Food and Drug Administration (CFDA) for imported devices now cost about US$34,000/€30,000, and Class III CFDA registrations for foreign devices have increased to nearly US$50,000/€44,000. Registration renewals, required every five years, now cost about $US6,600/€5,800 per renewal.
  • Russian device market regulator Roszdravnadzor raised its registration fees (link in Russian) back in January 2015; it now costs 45,000rubles (about US $680)  for Class I registration; 65,000 rubles (about US $990) or Class IIa registration; 85,000 rubles (about US $1290) for Class IIb registration, and 115,000 rubles (about US $1745) for Class III registration in Russia.

Official reasons for raising registration fees

Raising market entry fees may seem anathema to the governments of emerging economies seeking to develop their medical device sectors, but regulators in Brazil, China and Russia have all cited identical or similar justifications for driving up registration and quality system-related costs. Higher fees allow ANVISA, CFDA and Roszdravnadzor to hire additional staff and add resources to speed up device review processes, for example, and relieve “bottlenecks” resulting from too few or ill-trained regulatory staff having to process high volumes of market authorization applications.

Protectionism at play

However, old-fashioned protectionism is at play, as well—in most cases, registration and quality system fees have been raised at a substantially higher rate for foreign manufacturers than for domestic firms. The Brazilian government, for example, raised BGMP certification fees for domestic and regionally based manufacturers as well as for foreign firms, but at a much lower rate: Certification fees for local companies rose from R$15,000 to R$38,000. In China, Class II and III device registration and renewal fees are determined by provincial CFDA officials, but set by the central CFDA for foreign applicants.

The US Food and Drug Administration, in contrast, charges a flat fee of US$5,228 for 510(k) reviews for both domestic and foreign applicants, and charges no fee for FDA Quality System Regulation (QSR) quality system inspections.

Negative effects

By pursuing protectionist medical device market policies via exorbitant registration costs for foreign firms, governments in Brazil, China and Russia are taking a short-sighted approach to both more fully developing their economies and to better meeting their public health obligations.

For one thing, higher market entry costs will likely prevent many small- and mid-sized foreign medical device manufacturers from commercializing in these countries. Makers of novel and innovative devices may still find ways to enter Brazilian, Chinese and/or Russian markets, but these firms would likely pass on the high costs of registration directly to their buyers. Concurrently, favoring homegrown device companies may drive down competition in these countries; less competition in some device categories may in turn open the door to higher prices for healthcare providers, patients and users.

Second, in instances where manufacturers of innovative devices choose not to register in Brazil, China or Russia because of prohibitively expensive market entry fees, populations in these countries may not get access to the most effective treatments for some diseases or conditions at lowest possible costs.

Third, by making market entry harder for foreign companies in their respective countries, these governments amplify perceptions that their markets lack predictability and transparency. Pushing through significant fee increases with little to no public input and little to no time for industry to react (only a week passed between the Brazilian government’s announcement and implementation of the new ANVISA fees, for example) could discourage future manufacturers from pursuing registration in these countries for fear of further unexpected fee increases or tighter regulatory moves.

In addition to fees, regulations in these markets remain some of the least transparent and ever-changing in the world. ANVISA, CFDA and Roszdravnadzor update and release regulations on a much more frequent basis than the established regulatory authorities, causing turmoil in the industry and lack of trust.

End result: Self-inflicted disadvantages?

Brazil, China and Russia constitute three of the four BRIC economies (along with India) lauded for their major growth potential. But while Brazilian, Chinese and Russian regulators may assume that foreign manufacturers will pursue registration in their markets regardless of entry costs, many smaller medical device companies are faced with difficult decisions every year regarding which products to introduce in which markets. Some of these manufacturers will choose to skip Brazil, China and/or Russia simply or primarily because the cost of entry is too high.

As a result, deep-pocketed multinational manufacturers will dominate certain device categories in these markets, leading to higher prices and reduced access to cheaper, possibly more effective alternatives. 

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