CT market remains weak as customers await next-generation CT scanners

October 13, 2004

Weakness seen in the CT market during the preceding two years continued in the first half of 2004. And the second half is starting out worse than the first.

Weakness seen in the CT market during the preceding two years continued in the first half of 2004. And the second half is starting out worse than the first.

Industry estimates put the first-half shipment of new CT scanners to customers in North America a little north of $600 million, approximately on track with last year's disappointing $1.2 billion. Unit shipments, however, went beyond pundits' expectations earlier this year (SCAN 4/21/04), soaring to near 800 - an annualized rate well beyond the 1400 units shipped last year. Only price erosion can account for flat revenues and increasing unit shipments, and that is bad news for an industry whose orders in the first half of the year fell substantially below shipments.

One saving grace may be the arrival of 32-, 40-, and 64-slice systems. Each of the four major vendors either is already delivering or is promising routine shipments of their flagship products in the coming weeks. These systems could be game-changers for the industry, as early adopters fork over the unprecedented sum of $1.5 million per CT. But manufacturers will have to convince prospective customers of the clinical need for these systems.

"Our biggest challenge as a vendor is customer education," said Doug Ryan, director of the CT business unit in Toshiba America Medical Systems. "Physicians are struggling to understand the constant change in technology."

That struggle will have only a minimal effect on early sales of premium scanners. Philips, which began routinely shipping its 40-slice scanner just days ago, expects to have between 75 and 100 installed by the end of the year. Siemens is predicting 100 of its premium systems installed by the RSNA meeting. GE and Toshiba are similarly optimistic about the adoption of their systems in this and the next quarter or two. What happens next, however, may not be as friendly to the corporate bottom line.

Company loyalty among the installed base dictates many early sales. After these are in place, the market typically responds with a lull, as early adopters learn the ins and outs of the equipment and publish clinical results. During this time, the four major CT vendors will be slugging it out for sales. And it could get ugly. Companies are already deriding each other's products over the number of slices and the technologies behind them.

"This market buys so much on fear," said Jim Fulton, vice president of CT global marketing for Philips. "'This company has one more slice than the other does.' 'That company has one more widget than you do, so I have to buy theirs.' Anybody can go out and say anything."

Meanwhile, the presence of these megaslice scanners is likely to reduce demand for less powerful systems, particularly the 16-slice CTs, which have been the backbone of radiology practice for the last several years. A possible ebb to this falloff might come from the development of niche products based on yesterday's platforms. Philips is leading the way. The company became the first to acknowledge radiologists' declining interest in 16-slice scanners with the commercial release of the Brilliance CT Private Practice CV, which is oriented toward cardiologists.

Vendors are also relying on cardiologists' newfound interest in CT to sell their premium scanners. About 30% of the orders for Siemens' 64-slice configuration has come from centers focused on cardiovascular imaging, according to Bernd Ohnesoge, vice president of Siemens CT marketing and sales. Coronary artery imaging is a major driver for these sales. Where these systems will be sited, however, is something of a quandary.

"Cardiologists increasingly are looking at our product (Sensation Cardiac), and they are asking where they should put it," he said. "Should they put it in the cardiac cath lab or another lab in the cardiology department - or in the patient imaging center, next to the thallium camera."

Philips, Siemens, and GE also are feeding wide-bore multislice scanners into the oncology market, promising increased accuracy and faster throughput than can be achieved with the single-slice scanners typically used for planning radiation therapy.

These changes promise to complicate an otherwise relatively simple picture of the CT marketplace, which until now has been defined mostly by slices and not by medical specialty. It came as no surprise in the first half of this year that 16-slice scanners accounted for two-thirds of the revenue coming from North American shipments. Most of these systems sold for $900,000 - but vendors acknowledge that prices edged below that benchmark price. They will probably fall much further.

Philips' new Brilliance CT Private Practice CV scanner, which is optimized for cardiology, has a list price of $700,000. And this covers a lot more than just the scanner. Philips is intent on providing cardiologists with the knowledge and business tools they need to succeed, bundling its 16-slice system with information kits, training, and consulting services designed to ease cardiologists' transition into CT.

The Private Practice CV scanner, along with others aimed at oncology, could blunt the strong interest seen in the first half of the year in remanufactured systems. If this happens, prices for new 16-slice scanners might bottom out. Overall, average selling price will go up with the infusion of capital for the megaslice scanners. And the general picture could brighten by the end of the year. The under-16-slice systems, however, will likely slide further, as these systems become tougher sells.

Up until now, these products have been surprisingly resilient. In the first half of this year, four- to 10-slice scanners accounted for about a quarter of the total revenue coming from North American customers, according to industry sources. Siemens sells equipment in and below this range.

"We are seeing a general trend to provide multislice and single-slice solutions to cover all budgets and clinical needs," Ohnesoge said. "We sell a lot of six-slice scanners in the middle-tier market."

As the industry enters this transitional period, more surprises are almost certainly on the way.