Market in MR flattens in 2003 despite strong growth at 3T

April 30, 2004

Strange things are happening in the MR market. The number of new scanners sold last year rose slightly compared with 2002. Revenues, however, fell. Usually, this indicates a softening market-too few dollars chasing too many scanners. But it's not that

Strange things are happening in the MR market. The number of new scanners sold last year rose slightly compared with 2002. Revenues, however, fell. Usually, this indicates a softening market-too few dollars chasing too many scanners. But it's not that simple.

Last year, the number of 3T systems shipped in the U.S. rose. The increase in sales of these higher priced units should have caused a rise in revenue, but it didn't.

One possible explanation is that vendors fell prey to a market driven by intense competition. Driven to sell units, they began discounting so much that the growth in 3T sales was not enough to offset falling prices. Early indicators in the first quarter of this year show more of the same.

"It was actually a slightly down market last year, the first time we have seen that in a number of years," said Dennis Cooke, vice president of global MR for GE Healthcare. "We are definitely seeing the market slowing."

Overall, revenues from the shipment of scanners in the U.S. dropped about $50 million dollars from $1.47 billion in 2002 to about $1.42 billion last year, according to vendors. The shortfall was offset partly by an increase in revenues from upgrades and accessories, from about $142 million in 2002 to $165 million last year.

The rise in upgrade revenues, along with flat revenues from the shipment of new scanners, is consistent with an installed base seeking to squeeze a little more life out of existing equipment. Countering that conclusion, however, is an increase in the number of units sold-1150 in 2002 compared with 1170 last year-which indicates that vendors were aggressive in their attempts to buoy the bottom line.

The softness that resulted from competitive pricing may have been more severe than was immediately apparent. Industry sales of 3T systems nearly doubled in 2003, pumping more than $90 million into total revenues compared with about $53 million the previous year. These scanners, with an average selling price of about $2.2 million, propped up the revenue stream, lightening an otherwise bleak picture that will remain gray at best in the year ahead.

One problem may be a slowing growth of MR procedures. Cooke cited analyses that show procedure volume grew about 8% in 2003, down from 15% in 2002 and 18% in 2001.

"In addition, we are getting a lot of productivity out of the scanners today, so you have higher throughput at a time when the growth in the number of procedures is slowing," Cooke said.

Vendors can reverse this trend, he said. Enhancements such as GE's MR mammography technique, Vibrant, and its TRICKS technique for doing angiography can stimulate wider use of MR.

And there are other reasons for optimism. Revenue from 3T systems, having almost doubled in 2003, could double again this year. And 3T is just getting started.

Nancy Gillen, vice president of Siemens' MR division, describes the technology as having one foot in the clinical arena and the other in research. It will take a while for 3T to be widely accepted by clinical users, but that day will come.

"I don't see the 1.5T market going away, but as customers replace multiple systems at their sites, one of them will be a 3T, maybe even two," she said.

The increased availability of coils will be a major factor in this growth. Physicians have grown accustomed to a plethora of coils for use on 1.5T and lower field systems, but relatively few coils are available for 3T systems. That is already changing and will change even more in the near future. Next year, Siemens expects to begin selling its TIM (total imaging matrix) body coil for use on its 3T Trio. TIM is already available for Siemens' newly released 1.5T Avanto and will next appear for use on other Siemens high-field scanners.

The market for open MR is entirely different. Its peak is long past. Declining interest was evident in 2003, as total revenues from units shipped in the U.S. slipped nearly 10% from more than $320 million in the previous year to just over $290 million. There are conflicting opinions about whether the popularity of higher field 0.6T and 0.7T open systems will eclipse the sale of low-field units this year. Vendors say the figures from U.S. scanner shipments last year shows the two were in a dead heat, with each accounting for about $145 million in revenues.

Working against the higher field units is their exorbitant cost of manufacture and greater expense of installation. These factors limit vendors' ability to adjust prices, but low-field units are similarly constrained, according to Dane Peshe, director of Toshiba's MR business.

"These products have been around for quite some time," he said. "They have found their comfort zone in pricing."

Vendors have the least influence over what could have the biggest impact on their futures: the upcoming presidential election. Robert Kaftan, Philips vice president of MR, is haunted by an ominous vision based on a pattern of 12-year disasters that have befallen the industry. The first came two years after the election of Ronald Reagan, whose administration introduced diagnosis-related groups (DRGs), which initially decimated equipment sales. The second came two years after the Clinton administration took office, when an attempt by Hillary Clinton to reform healthcare led to a dramatic drop in imaging equiptment sales. Kaftan wonders whether the 12-year political plague will reappear in 2006.

"It's a guess," he said. "But we're already seeing Democrats raising the cost of healthcare as an issue in the election."