Low-priced MR sells well into private practices

May 5, 1993

Demand for new MRI systems continues in the private-practice/outpatient-centermarket, although buyers faced with declining reimbursement arepressing for lower equipment prices. Otsuka Electronics will shipseven of its OE 1.5 SI MRI systems this spring,

Demand for new MRI systems continues in the private-practice/outpatient-centermarket, although buyers faced with declining reimbursement arepressing for lower equipment prices. Otsuka Electronics will shipseven of its OE 1.5 SI MRI systems this spring, primarily to radiologyand orthopedic practices. By mid-July, the Fort Collins, CO, vendorshould have a total of nine systems installed in the U.S., saidDale Grant, vice president of sales and marketing.

While the targeted list price for Otsuka's high-field MRI unitremains $1.25 million, the vendor is considering ways to keepits price at $1 million or less. Some high-end features underdevelopment, such as echo-planar imaging, might better serve outpatientimaging providers if packaged as options on a lower cost standardsystem, Grant said. This is particularly true as MRI global procedurefees approach $500 from current fee levels--in some areas--of$1200 to $1400.

"The private center market looks upon (EPI) as a capabilitythat is nice to have but may not be used much. While it has interestingpotential, it is not a reimbursable event and not fully understoodin terms of applications," he said. "Pulling some (features)off the machine and offering them as an option would be easy inour case. It is simply a matter of removing the insertible gradient.If (the feature) is ever needed in the future, it would be inexpensiveto roll it in."

Otsuka entered the MRI market last year with a high-field systemtuned for head, neck, spine and extremity imaging but not whole-bodyscans. The most innovative feature in Otsuka's MRI design is theconcept of removable gradient and radio-frequency coils dedicatedto specific applications (SCAN 12/25/91).

Both the modular gradients and state-of-the-art electronicshelped keep the Otsuka system price relatively low for high-fieldMRI. Tweaking the product package offered to customers in orderto reduce the basic price would be consistent with this strategy.

"Our whole philosophy was to bring in a clinically usefulhigh-field system at around $1 million. We are right on track,"Grant told SCAN.

Otsuka has seen most interest in its MRI equipment from corporate-or radiology-owned centers as well as orthopedic and other physicianpractices, he said. The vendor has not found potential customersamong referring-physician-owned centers currently under severeregulatory pressure.

The vendor has not been active in the hospital market, as itdoes not have the business and technical track record that manyhospital customers look for, Grant acknowledged. There are signs,however, that future MRI equipment demand from the hospital sectormay sag relative to physician practices and other outpatient facilities,he said.

"There may be fewer (capital equipment acquisition) fundsavailable in universities and the traditional hospital market.The MRI (equipment) market, as we see it over the next coupleof years, will be based on primarily private operations,"Grant said.

Although Otsuka Electronics is a subsidiary of Otsuka Pharmaceuticalof Japan, the company's MRI systems are U.S.-manufactured. OtsukaElectronics (U.S.A.) is searching for a new president followingthe resignation earlier this year of Timothy O'Sullivan. Chairmanand CEO Ken Nakayama has assumed the additional position of presidentas the company seeks a replacement.

BRIEFLY NOTED:

  • Cytogen's launch of the first approved monoclonal antibody-basedimaging agent in the U.S. has started slowly, following a patternseen in Europe (SCAN 10/21/92). OncoScint was approved late lastyear for colorectal and ovarian nuclear imaging applications (SCAN1/27/93).

Cytogen saw a slight rise in revenue in its first quarter (end-April3), from $4.2 million in 1992 to $4.4 million. However, marketingexpenses for OncoScint helped nearly triple the firm's net lossfrom $2 million in the first quarter of 1992 to $5.8 million inthe same period of 1993. Cytogen also took a $1 million chargein the quarter to create a reserve for potential inventory writedownsas the shelf life of unsold OncoScint expires. It has petitionedthe Food and Drug Administration for an extension of the drug'sshelf life.

The Princeton, NJ, biotechnology firm began its OncoScint launchprogram in January with a four-month series of education workshopsaimed at nuclear medicine physicians. The second launch phasewill consist of advertising in oncology journals and direct promotionto oncologists and surgeons.

  • Nuclear medicine sales continue to help ADAC Laboratoriesbuck the downward or flat market trend seen in other imaging modalities.The Milpitas, CA, vendor had a 31% increase in revenue in itsfiscal 1993 second quarter (end-March), from $28.7 million in1992 to $37.6 million. Net income also rose 33%, from $3.3 millionin the second quarter of 1992 to $4.4 million in the same periodthis year.

ADAC may receive a further sales boost as its newest nuclearimaging system hits the market. The vendor shipped its first variable-angle,dual-detector Genesys Vertex camera, introduced late last year(SCAN 12/16/92).

"At approximately $79 million, year-to-date bookings areup 18% over the same period last year," said Stanley D. Czerwinski,chairman and CEO. "U.S. bookings in our nuclear medicinebusiness were especially strong. Despite the uncertainty existingin the health-care industry, they remained level with the recordbooking of the previous quarter."

  • Sluggish hospital purchasing and increased price discountingcontinue to hit ultrasound vendors hard. Acuson saw net salesdrop from $87 million in its 1992 second quarter (end-March) to$82.3 million in the same period of 1993. Competitor ATL cameclose to matching Acuson's sales in the period, but was hit hardon the bottom line. ATL's revenue in its first quarter rose 7.2%,from $76 million in 1992 to $81.4 million.

ATL's net income sunk from $3 million in the first quarterof 1992 to $1.9 million.

"Marketplace and economic uncertainties continued to placepressure on pricing and gross margins," said Dennis C. Fill,ATL chairman and CEO.

Acuson also saw net income plunge from $12.8 million in thefirst quarter of 1992 to $5 million this year.

"We expect that unsettled market conditions will be protractedand will impact our revenues and earnings further in the currentand upcoming quarters," said Samuel H. Maslak, Acuson presidentand CEO.

Diasonics, which broke out its ultrasound numbers prior tothe planned splitting up of the company (see page 4), has hada hard time in its effort to regain a leadership position in themodality. While ultrasound revenues rose 4% to 47.5 million inthe first quarter of 1993 (end-March), from $45.6 in the sameperiod of 1992, Diasonics' loss for this business grew from $3.4million in the first quarter of 1992 to $3.6 million in the latestperiod.

"The domestic ultrasound market continued to be soft,with uncertainty over the impact of health-care reform resultingin a delay of expected purchase decisions by hospitals, and increasedpressure on pricing and gross margins," said Bruce Moore,Diasonics ultrasound CEO.