Philips' first quarter offers hope for better imaging marketplace

For the first time in a year and a half, orders for Philips medical imaging equipment edged up in North America. It is the first tangible glimmer of hope that the great imaging recession may finally be over.

Executives at imaging companies have been telling me for months that the installed base had aged more in the last few years than ever before. Equipment that would otherwise have been replaced was still in service, kept going by upgrades and updates. But there was a limit to how long this could continue without affecting quality of care or denying patients the clinical capability they could-and should-get. The end of the recession, therefore, was near.

This assessment rang true in Philips' bell-wether first quarter revenue statement, released in mid-April, in which the company reported declining sales in North America but an upswing in orders: Quarterly sales in the region dropped 4%, but orders rose 7%. Demand for imaging and clinical care systems drove the rebound, according to the company. And Philips may not be alone. Executives from several vendors have told me they see increasing demand for their products.

A rising tide of demand may be lifting all boats, but growth here in the U.S. is not as good as it could be. It certainly is much less than it would have been in the past.

Philips, a global maker and distributor, reported a 16% increase in healthcare sales for the quarter in markets outside North America (compared with the 4% decline within North America). This sales growth, according to the company, was driven largely by emerging markets. Most telling is that this growth is continuing in the markets outside North America at a rate much greater than inside. Orders boomed 30% in combined emerging and mature markets outside North America, according to Philips.

In a larger sense, the pattern now taking shape reinforces a still-evolving view that the medical imaging market in the U.S. is no longer insulated from macroeconomic trends. In the past, the introduction of new imaging products had led to boomlets in the U.S. imaging marketplace. This pattern was most evident in the CT market with its cyclic release of algorithmically enhanced products that leapt from four to 16 and then 64 slices, creating spikes in purchases along the way. It was also evident in the steady growth seen during the 1990s on the heels of spiral CT.

We are now in a mature market with about as many CTs and MRs as it makes sense to operate. In the absence of products offering substantially new approaches or capabilities, U.S. sales are tagged to the need for equipment replacement. In much the same way as home owners add on a room rather than buy another house, when harsh economic conditions take hold, owners of imaging equipment upgrade what they have and delay big-ticket purchases.

This has led to a remarkable change in the world order for medical imaging equipment. Not long ago, the U.S. accounted for more than half the global market for these devices. Last year executives told me this share had fallen to about 40%.

We might accept this new reality and choose to view our glass as 40% full rather than 60% empty. Other markets, far less saturated than our own, are now providing the juice that vendors need to keep investing in R&D. In the past, countries outside North America benefitted from diagnostic advances designed into equipment being directed to the U.S. Now we can gain from throughput and efficiency advances designed into equipment being built for emerging markets.

Best of all, the economic bottleneck that has held back the flow of new equipment into clinical use in the U.S. is showing signs of giving way. And that can only mean good things ahead, if it continues.