U.S. MRI market tops billion-dollar mark but demand for open MRI declines

April 12, 2000

The number of MRI scanners shipped grew a tepid 2% in 1999, but that was enough to push revenue past the billion-dollar mark for the first time in the history of the industry. The U.S. market for MRI units soared in 1998, but market demand could not

The number of MRI scanners shipped grew a tepid 2% in 1999, but that was enough to push revenue past the billion-dollar mark for the first time in the history of the industry.

The U.S. market for MRI units soared in 1998, but market demand could not sustain the escalating pace. Sales leveled off in 1999, although momentum was sufficient to establish a second straight record in units shipped and new system revenue.

Revenue increased 12.2%, as the more expensive high-field systems picked up the slack from waning sales of open mid- and low-field systems, which had sparked the industry’s recovery in the mid-1990s. Overall, revenue and unit sales paled in comparison to those of 1998, when shipped units jumped 66% over the previous year and revenue increased 71%.

The market’s peak is good news to some, however, who feared sales and revenue would slump after last year’s huge gains. And even as the market in the U.S. attempts a soft landing, others around the world appear to be taking off.

Demand for MRI scanners was strong in Europe, particularly in Germany. The Asian market also began to improve last year, although Japan, the driver in that region, may have bottomed out, possibly setting the stage for greater demand this year.

The swings in the American MRI market through the late 1990s were propelled to a large extent by changes in demand for low- and mid-field open MRI systems. The market for open MRI shot ahead in 1997 and 1998, as freestanding imaging centers purchased the technology en masse. Last year, however, a sharp pullback in sales of scanners with less than 0.5-tesla field strength—largely open MR units—would have turned the U.S. market into negative territory were it not for growing high-field sales.

The decline in open MRI in 1999 may be an indication that mid-field markets have finally been saturated. Conventional systems at this field strength have increasingly been replaced by those with open configurations. Some vendors seemed intent on transferring the enthusiasm for open system to higher field models. Siemens, GE, and Fonar unveiled such products. Other companies, including Philips Medical Systems, are known to be working on similar systems.

This attempt at transference, however, might have been premature, as the appearance of these higher field open scanners may have put some prospective customers into a holding pattern.

“We are seeing an interest from customers in higher field open (MR systems) that is affecting the low-field open market negatively. There is no question about that,” said Robert D. Gylling, vice president and general manager of the MR division at Marconi Medical Systems (formerly Picker International).

Lagging demandAlthough the U.S. MRI market was flat to slightly up in 1999, this was due to stronger-than-expected demand in the first half of the year. MRI sales revenue increased 20% and 29% in the first and second quarters of last year over the same periods in 1998. Year-to-year revenue growth slowed dramatically in the third quarter to a 7.3% increase, and actually declined by 2.2% in the fourth quarter. Year-to-year unit MRI sales were even in the first quarter of 1999, jumped 22% in the second quarter, declined slightly (1.7%) in the third quarter, and dropped by 4.8% in the fourth quarter.

Overall, 928 MRI systems were shipped last year in the U.S., compared to 911 in 1998. During the fourth quarter of last year, 257 units were shipped, compared with 270 units in the same period of 1998 (Figure 1). MRI revenue for shipped equipment in all of 1999 was $1.074 billion, up from $964.8 million in 1998. Quarterly revenue sagged from $306 million in the last period of 1998 to $299 million in 1999.

“The first half (of 1999) was stronger than we expected and the second half was a little slower than we expected,” said Dennis Cooke, general manager of global MR business for GE Medical Systems.

Pent-up demand from earlier in the decade fueled growth in MRI sales in the U.S. over recent years, Cooke said. Now, the American market appears to be settling into a more natural growth rate driven by the increase in MR procedures. The market should pick up from the end of last year as it gravitates to this natural growth rate, he said.

MRI demand in Germany grew last year as customers apparently became concerned that the new government might institute changes in healthcare policy. In particular, private practices seemed to have stepped up equipment acquisition before new regulations could be implemented.

While other European MRI markets did not grow as fast as Germany at the end of 1999, the U.K. market should improve substantially in 2000. The British government has released “new opportunity funds” enabling the purchase of 33 MR systems this year through the government health system.

Continued sluggishness in Japanese MRI demand kept the Asian market down last year, according to GE’s Cooke. A main reason was that the Japanese government did not issue a supplementary budget in 1999. The Japanese market should be stronger this year, he said.

Chasing demand for open systemsThe emergence of higher-field open MRI scanners will likely shake up the stratification of technology. With high-field systems being positioned in the premium end of the market, sales strength in the open market below 0.5 tesla may shift to less expensive scanners at lower field strengths.

“The 0.2-tesla open (MRI system) has been positioned as a value product, where there is still a pretty strong market,” Cooke said.

There are signs, however, that open MR systems operating at 0.3 tesla and above, which sell for a premium over the lower field open units, may be hit harder by the new high-field technology, he said.

While there has been considerable interest in the new higher field open systems, availability is restricted to just one vendor—GE. Giving further pause is the need to determine where these higher field systems fit in the price/performance equation, said Sheldon I. Schaffer, vice president and general manager of MR for Hitachi Medical Systems America. Low- and mid-field open scanners had the dual attraction of quelling patient fears about confined spaces and accommodating tight budgets. Higher field open scanners will carry premium prices and therefore will have limited appeal to the traditional buyers of open systems.

Open systems accounted for a healthy chunk of MRI sales in 1999, Schaffer said, but a shift is occurring from predominantly imaging center demand to more of a mix between hospitals and freestanding centers.

“We have seen some transition over the last year or so towards hospitals. I would say there is a pretty even mix now of open MR (sales) activity in hospitals and imaging centers,” he said.

Along with the shift to hospital sales, more open systems are being purchased as replacement units, particularly for older mid-field superconductive technology, he said.

The proportion of low-field (less than 0.5 tesla) to higher field (0.5 tesla and above) scanners rose substantially in the U.S. during 1997 and 1998, involving about half of the units shipped in 1998. That figure declined in 1999, with low-field accounting for 40% of the units shipped and 27% of the revenue realized from shipments in all of last year. Of the 928 scanners shipped in this market last year, 375 were low-field units.

Hitachi, while maintaining confidence in its lower-field open technology, moved last year to position itself in the faster growing high-field market with the introduction of a 1.5-tesla short-bore system.

“While we have been very successful in open (MRI sales), there is a very large high-field market,” Schaffer said. “It is important for us to be a full-line MR supplier.”

Slowing demand for low-field open MRI systems in the U.S. may also be a factor behind the shift to a greater share of worldwide MR sales outside the U.S., as the relative importance of new and price-conscious world markets grows.

Expanding applicationsDemand for MRI in the U.S. and worldwide may accelerate in coming years as the modality expands into new application areas. This trend should also increase the share of new versus replacement system sales.

Three growing application areas are emerging in MRI: cardiovascular, where demand for MR angiography is booming; general interventional applications; and neurofunctional imaging, which is spurring growth at field strengths exceeding 1.5 tesla, said David Weber, manager, cardiovascular, neurovascular, and 3T products for GE Medical Systems.

While vendors are not currently selling truly dedicated cardiac MR systems, they are adapting their general-purpose scanners to function better in cardiac applications, Gylling said.

“(Vendors) are offering special gradient options to the scanners and special software. That is the amount of dedication,” he said. “For the first time, we are seeing a little bit of action and sales in this segment. While it is still fairly uncommon that cardiologists go alone for expensive equipment purchases like an MRI scanner, we are seeing that happen sometimes.”

GE estimates that about 80% of its optimized cardiac MR systems have some radiology involvement, while about 20% are solely owned or operated by either a cardiology department in a hospital or a private cardiology clinic, Weber said.

But that is starting to change.

“We think we will see a significant shift into the cardiac market this year. By the end of the year, I expect that shift to go from 20/80 (cardiology-only/some radiology) to closer to 40/60 for the cardiac-optimized systems,” he said.