MR market slows as rising demand for 3T meets flagging 1.5T sales

October 26, 2004

MR revenues are dropping. In the first half of 2004, vendors shipped about $650 million in new MR scanners. If the second half does no better, this year's revenue will fall far short of last year's. And last year's revenue was down from the year before that.

In 2003, revenues derived from the shipment of scanners in North America dropped about $50 million dollars from $1.47 billion in 2002, according to vendors. At the pace achieved by vendors in the first half of this year, shipments will reach about $1.3 billion-down more than $100 million, or 7%, from 2003.

Sinking revenues are being paralleled this year by a drop in the number of units. In 2002, vendors shipped 1150 units to customers in North America. last year this number climbed slightly to 1170. This year vendors are on pace to ship fewer units. Only about 500 shipped in the first half of 2004, an annualized rate of 1000, which would be down about 170 units from the previous year.

The MR market has never been linear, however. Projections based on the first half of the year, therefore, are only an indication that previous trends are continuing.

"I don't think we can say whether the U.S. market is dropping or is just flat," said Bob Giegerich, director of Toshiba America's MR business unit.

A longer term view of the market considers a more complex context. Giegerich noted that the MR market was skyrocketing just a couple years ago. If today's numbers are worked into those, the picture of a healthy market emerges.

"This previous growth was so huge that I don't see how it could be sustained," he said. "If you suck the pipe, it has to come from future purchases that no longer need to be made."

Bolstering this picture is considerable optimism among industry executives that the MR market might be up even in the short term on the heels of a rebound in the second half of 2003. This has led to predictions of an upside surprise by the end of the year characterized by single-digit growth in revenue for 2004 and the year ahead.

Siemens is particularly upbeat. The company has launched three new MR scanners in the past 10 months.

"We might be seeing a lull, but I am confident that shipments will come back up," said Nancy Gillen, vice president of Siemens MR. "Our backlog is quite healthy for the next year."

The market brightens even more when viewed from a global perspective. Jacques Coumans, Philips vice president of MR global marketing, noted that the drop in demand for MR in the U.S. is more than offset by growth in other parts of the world. MR is growing in the Asia-Pacific region, particularly China, where practitioners' embrace of CT may soon extend to MR, he said.

In most developed nations, sites offering CT typically also offer MR. But China has seven times more sites with CT than MR.

"This is totally out of whack compared with Europe and the U.S.," he said. "So I see a pent-up demand for MR in that country."

Coumans predicted that much of that will translate into the sale of 1.5T and 3T scanners. The top institutions in various provinces are already working at these field strengths. Their work is breeding a perception that lower field strength equates with lower performance, he said.

In the U.S., demand for 3T scanners is rising, while demand for 1.5T scanners appears to be on the wane. Vendors shipped almost $80 million dollars worth of the higher field systems to North American customers in the first half of this year, compared with $90 million in all of last year. If the trend continues, the end of this year could see nearly a doubling of last year's 3T revenue, which itself was almost double the $53 million shipped in 2002.

"Three-T is exploding faster than anyone-even us-imagined," said Dave Weber, Ph.D., manager of GE's global high-field MR business. "It will represent in the third quarter of this year more than 25% of our revenue relative to our 1.5T volume."

These scanners sell for about $2.2 million. Their buyers are customers who otherwise would have purchased tricked-out 1.5T scanners, he said.

"More and more of them are looking at 3T," Weber said. "If they were looking for two 1.5Ts, they now are looking at a 1.5T and a 3T."

This cannibalization of demand for 1.5T scanners is slowing down the current market. But it could foreshadow a boom, which will occur when prospective customers, who are now putting off purchases, take the plunge in the future.

"Once 3T acceptance becomes widespread, there will be a very big replacement cycle," he said.

When or whether this happens could be influenced by other factors affecting the U.S. marketplace. One is an apparently slowing growth in the number of MR procedures. Industry analyses show procedure volume grew about 8% in 2003, down from 15% in 2002 and 18% in 2001. Vendors hope to reverse this trend by developing advanced clinical applications. The development of new applications will be particularly prominent at 3T.

The increased availability of coils will support the transition of advanced applications from 1.5T to 3T. Until recently, relatively few coils had been available for 3T systems, but that is changing. Through its TIM (Total Imaging Matrix) platform, Siemens has created a system of coils that can be applied across the various field strengths in its MR portfolio. Other vendors are also emphasizing the development of 3T coils that will support advanced applications.

But 3T will not excel in all clinical areas. Cardiology requires a mature technology, one in which all the physics have been worked out and for which cost is at the lower end of the spectrum, Weber said.

"Although the cardiac capability is there for 3T, the technology is young," he said. "There is more to figure out, for example, regarding radio-frequency deposition. But what has really held back 3T in cardiology has been the cost."

Demand for cardiac MR could drive the sale of specialized 1.5T scanners, which will be able to handle perfusion and infarct detection through the assessment of functional dynamics. For this to happen, however, cardiac MR must compete successfully against nuclear cardiology and echocardiography, each of which requires equipment much less expensive than MR scanners, even those operating at 1.5T.

The market for open MR is even more uncertain. Demand for low- and midfield opens peaked in the mid- to late 1990s. Declining interest in this genre was evident in 2003, as total revenue from units shipped in North America slipped nearly 10% from more than $320 million in the previous year to just over $290 million. In the first half of 2004, open MR scanners accounted for just $115 million in revenue. If vendors do no better in the second half of the year, open MR shipments will garner about $230 million, a drop of more than 20% from the previous year.

But this too could be subject to change. Philips' 1T open system, unveiled Oct. 24 in Las Vegas (see accompanying article, this issue), could boost interest in open MR. Philips plans to bundle as much as possible its 1T open with its 3T scanner.

"The combination of 3T short magnets plus 1T open could be very powerful in this market," Coumans said.

The effect of this strategy will not be felt, however, until later next year, when the Panorama 1.0T becomes generally available. This effect might be countered by the availability of Siemens' Magnetom Espree high-field ultracompact cylindrical system, which is being positioned to compete against the Philips Panorama 1.0T.

But whether Espree sales ultimately are counted in the traditional cylindrical or open category is debatable. Siemens is positioning its Espree as a new type of open system, one that creates an "openness" similar to that of a CT scanner. Meanwhile, GE is unwilling to cede its strength in open MR to either company. Engineers have migrated the company's Excite data pipeline to the 0.7T Signa OpenSpeed platform, providing the foundation for this scanner to be used in advanced applications.

As these technologies evolve, they raise new questions about how to view the marketplace. Some underlying ideas and expectations, however, will not change.

"As long as the technologies prove that they add value to patient care and they do things better and faster, (the industry) will survive," Gillen said.