Ultrasound vendors struggle to grow sales amid market uncertainty

The ultrasound market is a cacophony of venues and technologies, each striking a different chord, each one in tune with special circumstances and needs. Radiology, echocardiography, and ob/gyn account for the major segments in the U.S., which serves as the world's premier marketplace for advanced medical imaging equipment and is dominated by three multinational corporations. But there is more to ultrasound than just three specialties; more to the industry than GE, Siemens, and Philips; and more to the market than the U.S.

The shifting picture of the global and U.S. markets alternately raises hope and fear. As a major modality, ultrasound can substantially add to or detract from the bottom line.

The sale of ultrasound equipment in the U.S. alone totaled $1.23 billion last year, according to the Klein Biomedical Consultants annual report. That was up slightly-somewhere in the single digits-from the previous year, according to KBC president Harvey Klein.

Vendors use sales figures compiled by the National Electrical Manufacturers Association as a barometer of the health of the market and industry. These estimates are known to be less than actual industry sales, because many more companies sell ultrasound equipment in the U.S. than share their numbers with NEMA. Individual vendors, however, adjust NEMA numbers upward to reflect what they believe is happening in the marketplace.

"Last year ended up being better than we were originally forecasting," said John Pavlidis, president of Siemens' Medical Solutions ultrasound division.

There is no guarantee, however, that growth will continue, according to Klein, who noted that things got tough in the fourth quarter last year and remained soft in the first quarter of 2004. He preferred not to comment on more recent developments.

"There is tremendous uncertainty," Klein said.

Midyear results drawn from consolidated industry numbers provide reason for guarded optimism. On the basis of these and internal analyses, industry executives predict low single-digit growth for the entire industry through 2004. But some bumps could appear along the way.

"We are seeing some softening: some postponements in decisions, longer decision-making, higher scrutiny of financial purchases by more levels," Pavlidis said. "So it could be a little bit slower than last year, but I wouldn't call it substantially lower."

The uncertain market for ultrasound equipment is indicative of a broader trend affecting sales in other modalities, particularly CT and MR, which have had uneven performances lately, Klein said. A major nemesis has been ever lower reimbursements.

"That is no great secret," he said. "People have to do more scans to make as much money."

Toshiba executives, who describe their company as being in a strong fourth position, do not see this as a problem. Rather, it is a natural course of evolution, as the need for improved efficiency drives the development and marketing of new equipment.

"Workflow, productivity, and ergonomics are big issues," said Steve Sickles, vice president of ultrasound at Toshiba.

In his annual report, Klein put the U.S. market in an international context. Global rankings, based on his estimates for sales and service, put GE on top, followed by Philips and then Siemens. The margin separating these competitors, however, is razor thin and subject to change. Each holds a market share in the low 20s, close enough to allow some jockeying in rank with a change of only a few percentage points.

Philips is on the road to doing just that, according to Barbara Franciose, CEO of the Philips ultrasound group. Since the mid-February release of Philips' new flagship iU22 (SCAN 2/25/04), the Dutch company has been chalking up increased ultrasound sales worldwide, as well as in the highly competitive U.S. radiology market. She pointed out that Philips is taking share from competitors, and if the trend continues, the company could edge out GE for the number one spot in the world market. But that's a big if.

Each of the major vendors, including Toshiba, claims strong individual growth. Toshiba claims 38% growth in ultrasound sales in 2003 over the previous year. GE claims 18% growth and asserts that the company passed the $1 billion mark for ultrasound equipment and service in 2003 for the first time in its history.

The imaging community looks for verification of performance from independent sources. Global analyses are sketchy at best, however, as information about the world market is hard to come by. The Klein report has provided benchmarks for many years, but Klein's strength is his analysis of the U.S. marketplace.

This marketplace is particularly important to the industry. Because U.S. customers have a penchant for expensive equipment, they are courted more aggressively than customers elsewhere in the world. Ultrasound prospects in radiology are the most sought after, as they generate the most revenues from equipment sales. Industry estimates put the dollar share for radiology at about 47% of the total spent on ultrasound equipment in the U.S.

In overall revenues for the U.S. ultrasound market, Klein pegged Siemens for first place with 28.6% market share, followed by Philips with 26.6% and GE with 23.2%.

In the U.S. radiology marketplace, Siemens again came out on top, garnering 46.3% market share in dollars versus 26.8% for second place Philips and 21.7% for third place GE. This is the fourth year in a row Siemens has bested its top two rivals.

Pavlidis attributed the company's success to the upgradability and technological foundation of the Sequoia platform. Unit shipments of the company's flagship Acuson Sequoia increased 12.3% in 2003, making it the number one selling ultrasound system in the U.S. for the seventh year in a row, according to KBC. Pavlidis said the company also scored a big increase in sales for the Sonoline Antares system.

Echocardiography accounts for about 32% of the total dollars spent on ultrasound equipment in the U.S. Philips was the overall leader in echo, with 42.7% followed by Siemens with 31.4% and GE with 18.2%, according to the Klein report. Philips achieved this dominance through its acquisition three years ago (SCAN 8/8/01) of Agilent, formerly Hewlett Packard, whose products set the standard for echocardiography performance throughout the 1980s and '90s.

Philips' grip on the echo marketplace has been slipping, however, a fact confirmed by Franciose, who believes Philips can and will do better in the future. Much of the lost ground has been captured by Siemens, thanks in large part to its acquisition of Acuson in 2000. In the 2003 KBC report, Siemens' echocardiography revenues showed an increase of 42% over the respective data in the 2000 KBC report.

Pavlidis expects Siemens' momentum to continue in the echocardiography market on the heels of recent product upgrades for the Sequoia C512 and C256 echocardiography systems and enhancements to the company's portable Cypress system. The AcuNav diagnostic ultrasound catheter is also expected to contribute to the company's strength in echocardiography.

Ob/gyn sales account for about 17% of total U.S. dollars spent on ultrasound equipment. GE excels in this area, according to Klein, who credits GE's Voluson 730 as being one of the drivers in this marketplace.

"GE has always done well in ob," he said. "But since they bought Kretz (and began marketing Kretz's Voluson 730), they have done extremely well. (The scanner) has been their growth engine."

GE garnered more than half the market share in ob/gyn last year. Its nearest competitor lagged far behind, corralling less than 20%.

The Voluson 730 established 3D imaging for use in routine obstetric exams, Franciose said. But now other companies' 3D and 4D capabilities are becoming accepted as well.

Siemens hopes to push 3D/4D imaging beyond obstetrics and into radiology. Pavlidis sees such opportunities in applications involving the kidneys, bladder, and liver.

"The combination of 3D and contrast media applications is potentially interesting, as well," he said.

Here GE may have an advantage. Its $9.5 billion acquisition of Amersham, finalized in April, unites contrast agents with ultrasound imaging and image management systems.

Just because contrast agents haven't taken off yet in the U.S.

doesn't mean they won't. The Voluson 730 was on the market for several years before GE started marketing it. And the market for 3D imaging has changed a lot since then.