EUROPEAN IVD MARKET
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PHOTO BY RONI RAMOS.
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Several events have taken place since the beginning of the 21st century that have changed the environment for marketing IVD products in Europe. On January 1, 2002, 12 of the 13 members of the European Union (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, and The Netherlands) adopted the Euro as a common currency. In April 2004, 10 more countries (The Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, and Slovakia) joined the European Union (EU), making Europe one of the world's largest markets with a current population in excess of 462 million people.
The emergence of the euro and an increasingly united European Community have led to the perception that Europe is a single market. In fact, standardization feeds the strains of countries that look to protect their individual cultures and healthcare delivery traditions. Harmonization activities undertaken by the European Council are always balanced with provisions for individual country rights.
Despite the signs of unity, Europe remains a collection of separate national healthcare services and regulatory environments that are moving toward more standardization. Despite the EU's IVD Directive, IVD companies must file for separate regulatory and reimbursement approvals for each country. More importantly, market clearance and reimbursement levels in one country do not assure acceptance across the EU. Each country of the EU faces budgetary pressures that are reflected in the menu of tests and technologies and the level at which they are reimbursed.
Furthermore, the former Eastern Bloc countries do not share the same level of resources to support government-guided healthcare infrastructures as their new partners in Western Europe. As an added concern, the latest countries admitted to the EU are plagued with public health problems such as TB, HIV, and sexually transmitted diseases that require significant investment to correct. While this has created market opportunities for IVD manufacturers, it has increased social and financial pressures on an economic union that itself is feeling the effects of economic downturn.
Market Numbers and Forecasts
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Table I. (click to enlarge) IVD sales in the European Union, 2005. Source: European Diagnostic Manufacturers Association, Kalormama Information
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In 2005, the EU countries accounted for 30% of the world IVD market, with revenues totaling $9.7 billion (see Table I). With 4% average annual growth, revenues will reach $11.7 billion by 2010. Most of this growth is driven by increased market penetration of molecular assays, especially for infectious diseases (75% of all molecular testing). In 2005, single nucleotide polymorphism (SNP) testing accounted for only a small portion of the molecular test market. This is expected to grow significantly as the market shares of cancer and pharmacogenomic diagnostics are expanded.
Large multinational companies hold the lion's share of the European market for IVDs. Roche Diagnostics is the leader in chemistry and immunochemistry workstations. Abbott Diagnostics is a major vendor of immunoassays. Beckman Coulter is the undisputed leader in hematology and protein analyses. Dade Behring is also strong in chemistry and immunochemistry workstations. bioMérieux and now Siemens—the new owner of Diagnostic Products Corp. and Bayer Diagnostics—are major vendors of immunoassays. bioMérieux also dominates the microbiology market. Instrumentation Labs leads the market for critical care testing.
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Table II. (click to enlarge) IVD sales by country in the Eukropean Union, 2005 vs. 2010. Source: European Diagnostic Manufacturers Association, Kalorama Information
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Since 2000, the demand for a wider variety of IVD products has encouraged European IVD manufacturers to establish a presence in the United States via collaborations, distributors, or subsidiary offices in the United States. These companies include the following: Aalto Bio Reagents Ltd. (Ireland), Alfa Wassermann B.V. (The Netherlands), Analox Instruments Ltd. (United Kingdom), Ani Biotech (Finland), Biogenesis Ltd. (United Kingdom), Biohit PLC (Finland), Biotex (France), Boule Diagnostics AB (Sweden), Campro Scientific (Germany), Grifols International (Spain), IDS Ltd. (United Kingdom), Labsoft Diagnostics (Germany), Macherey-Nagel GmbH (Germany), and Serotec Ltd. (United Kingdom).
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Table III. (click to enlarge) Estimated IVD market growth rates of selected European countries. Source: European Diagnostic Manufacturers Association.
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Growth in the smaller, less mature countries (Finland, Greece, Ireland, Luxembourg, and Portugal) helps maintain growth at 4% per year. Their share of the EU IVD market has grown from 5% in 1996 to 9% in 2005 (see Table II). The continued expansion of diagnostics in these and the new 2004 additions to the EU provide market growth while the more developed countries pull back resources from healthcare spending (see Table III).
These data illustrate the effects of economic pressures, which are discussed below, on Germany, Italy, and France—once considered the engines that drove European IVD market growth.
Demographic and Economic Pressures Force Change
As the number of children born in Europe decreases, there will be fewer people in the middle-age group to support their younger and older dependents. With less money produced in the country, less will be collected by public budgets, of which healthcare forms an important part. In turn, less money for health will mean the deterioration of facilities and access, leading to a worsening of the population's health status. Demographic aging is also leading to the increased incidence of age-related diseases, such as cancer and cardiac problems, which are more costly to treat. In such a situation, more money would consequently be required for treatment.
All of these circumstances have shocked the governments of some European nations into realizing that maintaining cradle-to-grave government-funded healthcare programs is impossible in the long term. Reforms are underway.
For example, in Germany, a public health insurance system covers the approximately 85% of the population who earn less than ?3900 ($4000) per month—mostly people who are retired, unemployed, or who depend on social security. Company-supported statutory or private health insurance companies insure the remaining 15%. The German medical technology association Bundesverband Medizintechnologie (BVMed), the umbrella group for 200 manufacturers and service providers, announced that the current measures to suppress costs and the imposition of budgets have not been successful.
The situation in Germany was exacerbated by West Germany's absorption of the East German population after reunification. BVMed suggested the healthcare system is in need of drastic action. While that has been taking place during the past three years, German use of IVD products has been decreasing by about 1% per year. The public healthcare system also suffers from chronic deficits, and insurers are reporting big losses. The Gesetzlichen Krankenversicherungen, or statutory health insurance funds, have run out of money, and the country cannot increase salary deductions. In 2003, workers were paying more than 40% of their gross wages in compulsory pension, health, unemployment, and disability insurance fees.
As of January 2004, diagnosis-related groups (DRGs) were introduced into inpatient reimbursement. By 2007, the hospital budgets still in effect will be changed into unified pricing schedules, with a considerable impact on hospitals. Hospitalization periods are likely to be reduced, numbers of beds reduced, and some hospitals closed.
Because of low birth rates and an aging population, funding for Germany's health sector has become an increasingly difficult issue. According to a study by the Rheinisch-Westflisches Institut fur Wirtschaftsforschung (RWI) economic think tank and ADMED Health Care GmbH, a tenth of Germany's public hospitals will be unable to survive the next five years because they are not economically sound. Further, if these were closed, some 4.9 billion euros could be saved annually from 2010. The German government planned to present a proposal for reform of the country's health sector in the first half of 2006.
Physician office labs have also seen a decline in laboratory fees. The amount paid by the public health system for laboratory services dropped by more than half from 1980 to 2003, while the number of laboratory tests carried out more than doubled over the same period. Furthermore, laboratory budgets for physicians were established. As a result, the number of special laboratory tests dropped by as much as 40%, and at the end of 2003, they still stood 30% below pre-1999 levels. In 1998, 124 million special laboratory tests were completed at fees totaling $1.36 billion. In 2003, only 88 million tests were reimbursed—at a total value of $1.03 billion.
The German government drafted a package of reforms, which was approved by the German parliament in September 2003. The reforms aimed to improve Germany's economy by reducing nonwage labor costs, providing more money for manufacturing investments. 20 billion euro were also cut from the healthcare budget.
The reorganization continued in 2005. In November 2005, German Health Minister Ulla Schmidt announced that, "Germany needs to cut drastically the number of health insurers and to align doctors' fees paid by private and statutory insurance patients. According to the latest statistics, we have 262 health insurers with 262 well-paid boards. I don't want to name a specific number. But if we had between 30 and 50 insurers, there would still be a very good selection and plenty of competition."
In May 2005, the structure of the Institute for Quality and Efficiency in Health Care was finalized. This independent institute is governed by the Gemeinsamer Bundesausschuss, a private foundation established by the federal joint committee that self-administers the health services in Germany. The institute is responsible for the scientific evaluation of the use, quality, and efficiency of healthcare services and pharmaceuticals in Germany. Additional roles include the evaluation of clinical practice guidelines, making recommendations to disease management programs, and the publication of health information for patients and consumers. The institute will also recommend which new pharmaceuticals and IVD products are to be reimbursed. These decisions will be made according to evidence-based medicine.
In February 2002, Hungary announced it would spend over 600 billion Forint ($2 billion) during the next four years on consolidating its healthcare system. The plan promises to involve substantial private capital in healthcare and spend on structural changes, medical equipment, and a major wage hike for healthcare employees. This was done in preparation for the country's membership in the EU.
In July 2004, the French parliament announced measures intended to slash the debt burden in France's healthcare system. The reform bill includes a charge for seeing the doctor. The effort to erase France's 11 billion euro ($13 billion) annual healthcare deficit is part of a commitment by France to bring its public debt to within an agreed EU limit of 3% of gross domestic product by 2005. The reform is aimed at raising 5 billion euro a year in new taxes and seeks annual cost savings of another 10 billion euro.
In December 2003, the British government announced an infusion of more than $33 million to improve access and facilities for patients with sexually transmitted infections. The funding was in response to two reports showing that the incidence of infections was rising, and that genitourinary medicine clinics were overwhelmed and not able to treat patients promptly.
In June 2006, the NHS opened walk-in centers to allow British commuters to get medical treatment on the way to and from work, which are located at London's Liverpool Street and Manchester Piccadilly train stations. These two centers are the first of seven planned centers, with others to follow at King's Cross and Victoria train stations and Canary Wharf in London, and at the Newcastle and Leeds stations.
In December 2002, EU ministers agreed that citizens of EU nations would be allowed to seek medical treatment in other EU countries if their home country's healthcare waiting lists are too long. The decision is part of legislation related to social security and healthcare. It is expected that the law will take more than two years to put into practice since EU states will try to establish how to implement the decision before the 2004 deadline. This will put more pressure on the more developed healthcare systems in Western Europe as individuals from eastern member countries seek care outside their countries of residence.
To facilitate this program, as of June 1, 2004, citizens of EU nations will have access to a plastic card that will replace the paper forms that are needed whenever a person from one European country wants to visit another country. The chip on the card contains the national insurance details that will theoretically make reimbursement for services a much quicker procedure. In addition, a number of European countries have already decided to include the person's blood type on this first-phase card. The card will eventually carry vital medical information and the patient's history.
Harmonization and the IVD Directive
On the regulatory front, under pressure for harmonization across the EU, the European regulatory environment for medical devices has undergone dramatic changes. For example, the IVD Directive was implemented in December 2003. The directive mandates that if an IVD manufacturer makes medical claims for a product, it will be considered a medical device and must be CE marked. As of December 7, 2003, a CE mark is mandatory for marketing IVDs in the EU. A grace period was allowed until December 2005, in which laboratories could use non–CE marked products, but thereafter only CE marked devices could be used.
Before the medical device directives were introduced, European national regulations were light on details and varied. In fact, many IVD products were first introduced in EU countries. This allowed IVD manufacturers to generate cash flow and proof of their products' abilities before tackling FDA and the U.S. market. Since the implementation of the IVD Directive, the IVD industry has asked for a harmonizing directive to avoid the proliferation of diverging national measures. While regulations naturally increase the cost of marketing products, the effect that the directive will have on the already slowing EU market for IVD devices is yet to be seen.
There are a number of gray areas in the IVD Directive. For example, since home-brew assays do not appear to be covered, in theory, it would be possible for a laboratory to assemble various unregulated components to develop an assay that would otherwise be regulated under the IVD Directive.
In 2005, a new guidance released by the Medicines and Healthcare Products Regulatory Agency (MHRA) stated that home-brew IVDs remain exempt from the requirements of the IVD Directive when patient samples are sent by a different legal entity to a health institution for testing. The guidance amended a letter sent by the agency to the National Health Service Trusts and Strategic Health Authorities in 2004 that put IVDs developed in-house under the jurisdiction of the IVD Directive.
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Sharon Rosen is a senior analyst with Kalorama Information (New York), a publisher of market research in the life sciences. She can be reached at stratcom@total.net.
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According to article 1.5 of the IVD Directive, IVDs are exempt from the requirements of the directive if they are "devices manufactured and used only within the same health institution and on the premises of their manufacture, or used on premises in the immediate vicinity without having been transferred to another legal entity." MHRA added that if a test meets these conditions for exemption, "it is irrelevant that a diagnostic service is being provided to a different legal entity—the exemption will still apply." MHRA does not consider freestanding laboratories to be health institutions, and therefore such labs do not qualify for the exemption. However, freestanding laboratories may benefit from this exemption, as they may be able to send samples to exempted health institutions to be tested with home-brew IVDs.
Opportunities and Disappointments
With the dissolution of the former Soviet Union, Eastern Europe was considered a lucrative emerging market for medical devices. However, under intense economic difficulties, the health systems continue to be in distress. With dwindling government resources, healthcare has been a low priority throughout the region since the collapse of communism. While Eastern Europe, especially since having been admitted to the EU, is still considered an attractive emerging market for medical devices, IVD industry professionals agree that this is a long-term perspective. In the immediate term, these markets will require a major overhaul of their healthcare systems before being considered lucrative expansion prospects.
