Stronger economy threatens continued growth of MR sales

August 28, 2002

Record year in 2002 could be last hurrahEconomic recovery may bring bad news for the MR industry. The National Electrical Manufacturers Association's Diagnostic Imaging and Therapy Systems group predicts that shipments of MR

Record year in 2002 could be last hurrah

Economic recovery may bring bad news for the MR industry. The National Electrical Manufacturers Association's Diagnostic Imaging and Therapy Systems group predicts that shipments of MR scanners will continue to boom in 2002, but then fall off in each of the next two years as a consequence, ironically, of a strengthening economy.

As the U.S. pulls out of the recession, healthcare costs will rise faster than wages, NEMA predicts, causing an economic environment similar to that of 1993 and 1994. Those were dark days for the MR industry, a two-year period during which U.S. sales of MR scanners dropped by about 60% from their (then) all-time high in 1992 of $812 million. Adding to problems in the years ahead will be rising medium-term interest rates, which will affect capital equipment spending, according to NEMA.

Fueling concerns at NEMA is the current state of interest rates, which are at their lowest level in years. A growing economy is expected to pressure the Federal Reserve to nudge rates up to more historically typical levels, which may be necessary to moderate economic growth and keep inflation in line. But managing growth and inflation is not yet the Fed's major concern. Earlier this month, Fed chair Alan Greenspan indicated that interest rates may be cut rather than raised to prevent the economy from slipping into a dreaded "double dip" recession. NEMA forecasts were rendered July 25, before the latest signs of the economy were apparent and before the Fed began leaning toward more rate cuts. This might, however, only delay a slump in MR sales.

If and when rising interest rates and healthcare costs do start to affect the market, executives focused on other modalities have less reason to worry about a slowdown in sales, according to NEMA. One reason is that other modalities, with the exception of CT, have not experienced the same boom as MR and, therefore, are less vulnerable. And CT should be only minimally affected by negative economic factors, according to NEMA, because multislice innovations will continue to propel sales.

Slipping MR sales might also be offset by innovation. Just as multislice rejuvenated CT sales, a more powerful high-end system could rev up MR sales. MR manufacturers and the clinical community are leaning increasingly toward 3T. Some industry executives believe 3T scanners will account for a substantial percentage of unit sales within the next several years. The downside is that these sales could eat into the sale of 1.5T units, as demand for 3T scanners expands beyond research facilities to be taken up by the avant garde of mainstream clinical imaging.

Even when all three vendors capable of delivering 3T systems are in full production with them, these scanners will cost at least $2.5 million to $3 million dollars--up to double the typical price of a 1.5T scanner. The added cost could force some prospective buyers to delay their purchases for a year or two. Others may turn to leasing. IMV Medical Information Division reports that only about 20% of MR scanners were leased in 2001.

Another possibility is that prospective customers could simply keep buying the less expensive 1.5T scanners for a while longer. Versions of sensitivity encoding and new computing platforms are extending the clinical reach of these systems. Opportunities in vascular imaging and orthopedics could increase demand for these products. Vascular MR procedures will more than quadruple from 2.5 million worldwide in 2001 to 11 million in 2005, according to GE Medical Systems. Orthopedic procedures will more than double from five million in 2001 to 12 million in 2005.

Altogether, worldwide MR procedure volume will rise from 31 million in 2001 to 60 million in 2005, according to the company. Just four areas--spine, brain, orthopedics, and vascular--will be responsible for most of this growth.

MR angiography will be one of the leaders because this application will be viewed as a cost-effective alternative to x-ray-based angiography. The foundation for this growth is already in place. MRA was being performed at 58% of U.S. sites in 2001, according to IMV.

Much of the expanded volume will be handled by high-performance systems. More than 60% of the 6660 MR scanners installed in 2001 in the U.S. were operating at 1.5T or higher, according to IMV. Sites surveyed by IMV indicated their continuing interest in purchasing high-field systems. This is corroborated by recent reports compiled by NEMA, which indicate that high-field unit sales are continuing to boom. In the first half of this year, 536 scanners were shipped to U.S. customers at a value of $682.4 million. That is 75 more units and $102.9 million more than last year at the halfway mark.

If sales continue at this pace, the industry will set a new record in 2002. NEMA forecasts the sale of nearly 1100 MR units in the U.S., which would generate about $1.4 billion in revenues, based on an average scanner selling price of $1.3 million. The previous high--949 units valued at $1.2 billion--was set last year. But the record, if NEMA forecasts are correct, will be bittersweet for the industry. How long the good times will continue to roll may depend on the length of the recession and how well the industry manages the shift from 1.5T to 3T as the standard for high-field imaging.