MR market in U.S. heads for soft landing in 2006

July 6, 2006

Demand for MR scanners in the U.S. and worldwide is increasing, leading to optimism among vendors that the industry will achieve solid gains this year at 3T and 1.5T, despite eroding prices and a soft market for open scanners.

Demand for MR scanners in the U.S. and worldwide is increasing, leading to optimism among vendors that the industry will achieve solid gains this year at 3T and 1.5T, despite eroding prices and a soft market for open scanners.

The consensus estimate among major vendors is that new scanner shipments in the U.S. this year will total 1030 units and result in about $1.4 billion in revenue. These numbers, if achieved, will be realized as an estimated 750 units at 1.5T, 120 at 3T, and about 160 open scanners.

U.S. market performance is expected to rise 4% above 2005 in gross revenue ($1.35 billion in 2005) and 7% in unit number (960). If this prediction comes true, the market will land between the $1.45 billion seen in 2004 and $1.35 billion, with a bias toward the upside.

Consolidated predictions for the world market put the U.S. market in line with others: an estimated 4% revenue increase in Europe and 3% in the Asia Pacific region. But U.S. revenues could drop substantially if certain factors come into play.

The biggest concern is the Deficit Reduction Act (DRA) of 2005, due to take effect Jan. 1. Medicare reductions built into this legislation would affect outpatient imaging centers (OICs) and potentially prompt reductions in capital investments (DI SCAN 6/19/06 The Deficit Reduction Act: What we can do about it). This could have a particularly adverse effect on 3T sales, said John Chiminski, GE's vice president and general manager of global MR. OICs have been buying many of the 3T systems as a way to differentiate themselves from competing services, he said.

"We haven't seen any significant tail off from the OICs based on the Deficit Reduction Act, but I also think that as we get closer to its implementation in 2007 we may see some effects," Chiminski said.

Relief may be on the way, however. Legislation introduced last week, if passed, could delay implementation of the DRA for two years. This would buy time for the imaging community to work with Medicare administrators on a plan to reduce spending in a way that is less damaging to patients and the medical community (DI SCAN 6/30/06 Business Briefs: Congressional bill would delay DRA).

OPEN FIELD

Over the long term, executives are bullish about 3T prospects, as U.S. customers get more comfortable with this technology. The promise of advanced applications is driving 3T sales, while reduced prices are bolstering 1.5T unit sales. Meanwhile, specially designed systems, such as Siemens' wide-bore 1.5T Espree and Philips' open Panorama 1T, may draw customers away from mid- and low-field MR devices.

"The Espree is part of the reason for the very big slip last year in the open MR market," said Nancy Gillen, vice president of Siemens MR, who notes that two years after the launch of Espree, Siemens has sold more than 100 units in the U.S. "It has given customers another choice for openness while offering high-field image quality."

Overall, industry executives expect a better MR market the rest of this year ($1.4 billion in new scanner shipments) compared to last, with the various bullish and bearish factors balancing each other out. Last year's drop in revenue for new scanners shipped to U.S. sites was attributable largely to a huge drop in the open market, which saw unit numbers fall some 38% and dollar value drop 62%, according to consolidated industry estimates.

Sheldon Schaffer, Hitachi Medical Systems America vice president and general manager for MR, believes the worst may be over for low- and mid-field open systems.

"We will see (these scanners) fulfilling the needs of the medical imaging community, both in private imaging centers and in hospital outpatient centers," he said. "Open MR is an important component of those business ventures."

Gillen, however, believes demand for mid- and low-field open systems could soften further. She is betting that Siemens' Espree will pull more customers away from the traditional open marketplace. Schaffer disagrees.

"Some of the impressions we are receiving from the marketplace are that, sure, it [the Espree] is a wide-bore 1.5T system, but it is not necessarily an open MR," he said. "When it comes to head, shoulder, and spine, the patient is still in a bore."

Philips' Panorama 1T, however, is an open MR with the kind of productivity and range of clinical applications found on a traditional high-field system. This makes Jacques Coumans, vice president of global marketing for Philips MR, bullish on prospects for this product.

"We have substantially increased our market share in open thanks to the high-field Panorama 1T, because there is a significant change happening," he said. "The low-field and mid-field open market is vanishing very rapidly."

Building on the success of its Espree system, Siemens has another specialty system on the horizon, an MR/PET hybrid, which is currently in prototype and scheduled for installation at Massachusetts General Hospital by year's end. Other alpha systems will be deployed at a number of clinical sites before the company goes into production with a commercial device by the end of 2007 (DI SCAN 5/11/06 Siemens unveils plans for MR/PET hybrid).

In addition, Siemens is dabbling in the intraoperative market, supplying Espree scanners to a Canadian company, IMRIS, that hangs the Espree on a ceiling track and shuttles the scanner between operating rooms or an OR/diagnostics suite.

HIGH PERFORMANCE

While they may disagree over the direction for low- and mid-field systems, there is consensus among vendors that the current and future MR market will be found in high-performance cylindrical systems. Demand for 3T systems remains strong, although it has begun to ebb. The biggest spurt in 3T was between 2003 and 2004, according to Chiminski.

"Market growth rate slowed a bit in 2005 as the 3T segment size became more substantial," he said. "Shipments showed a double digit increase and there were a lot of installations from a sales standpoint in 2005."

Consolidated estimates from the vendors with 3T - GE, Siemens, and Philips - indicate that 3T sales in the U.S. reached about 100 units last year, with revenues of close to $200 million, a 14% revenue hop from the year before and a 20% jump in unit numbers. Orders for 3T have begun to slow, however.

"We are looking at a range of 8% to 10% growth for 3T this year over last," said Chiminski, who estimates that GE has about a 60% share of global 3T sales and about half the sales in the U.S.

The higher growth of 3T systems last year in unit numbers versus revenues indicates softening prices, which execs at the major companies confirm. Prices are even softer at 1.5T. Revenue from shipments of these scanners declined a modest 2% from 2004 to 2005, from about $990 million to $970 million last year. But vendors had to sell 8% more units to achieve that, as the number of units shipped to U.S. sites jumped last year to nearly 790 from about 730 the year before.

GLOBAL GROWTH

The rising market for MR has led to an expanding installed base in the U.S. that is currently estimated at close to 11,000. This base fuels future sales through demand for replacement systems, as MR scanners have an average life of about eight years, according to industry estimates.

Upgrades offer particular opportunity, according to David Handler, GE general manager for MR global marketing, who cited increasing interest last year in the company's Continuum program. This program supports state-of-the-art upgrades - even for an 18-year-old system - that cost less than the price of a new device, he said.

"The volume of procedures is growing and customers see this as a way to gain capacity with existing magnets," he said.

About 75% of the installed base of 11,000 consists of cylindrical systems, and 1.5T units compose the majority. Fewer than 400 3T systems are currently operating in the U.S., according to industry estimates.

Globally, the 1.5T market averaged $2.1 billion to $2.2 billion last year, according to Handler. The market at this field strength has been relatively flat since 2003 and will remain so for the rest of this year, he said.

"But we do expect to see the 1.5T market reinvigorated in 2007, fueled by new procedure growth in breast, body, and advanced neuro applications," he said. "Any rise at the higher field strengths has come and will continue to do so from 3T and 1.5T upgrades."

Coumans expects industry-wide growth for MR in Europe and Asia, albeit at relatively low rates.

"Europe, the Middle East, and Africa are still going strong with a 4% growth prediction for 2006," he said. "China and most of Asia/Pacific are growing very nicely with strong gross domestic products, which reflect investments that continue to happen in healthcare, although we foresee a slowdown on the Japanese side."

In the U.S., the impending DRA could weigh heavily on sales. The cuts are making some prospective customers cautious, according to vendors, but so far there appears to be little overall negative effect.

"We have not seen a direct effect on the backlog or order intake, but we are cautious," Coumans said. "In 2006 and certainly in 2007 in the MR and the CT markets, we could see a drop of between 5% and 6% in volume in North America."