X-ray contrast media firms struggle with continued price pressure in U.S.

June 10, 1998

Price collapse has scared off at least one generic companyThere is no relief on the horizon for companies in the long-suffering U.S. x-ray contrast media market. Prices of nonionic low-osmolar x-ray contrast are well into the third year of a

Price collapse has scared off at least one generic company

There is no relief on the horizon for companies in the long-suffering U.S. x-ray contrast media market. Prices of nonionic low-osmolar x-ray contrast are well into the third year of a protracted slump, hammering the profit margins of contrast suppliers and prompting several companies to seek safety in mergers, acquisitions, and other corporate restructurings. On the clinical side, lower pricing has not resulted in a significant boost in usage of x-ray contrast, although it has helped accelerate the conversion from ionic to nonionic media already underway because of concerns over patient safety.

Prices for x-ray contrast media in the U.S. began declining in 1996, and many contrast suppliers had hoped that the market would stabilize by 1998. That hasn't happened, however: Nearly every major publicly traded contrast media supplier has reported in recent months that ongoing pricing pressure in the U.S. x-ray market is exerting a drag on profitability.

The pricing sensitivity is due almost entirely to the power of group purchasing organizations, which have changed the game of contrast purchasing through sole-source deals with suppliers. GPOs exert an iron grip on U.S. hospital purchases, and therefore any contrast media supplier not under GPO contract is forced to contend either for the remaining slice of the market or for those individual member hospitals that slip through GPO compliance efforts.

Low profit margins, combined with minimal market access, makes entrance into the U.S. x-ray contrast market a daunting challenge for potential competitors. Few new suppliers are active, with one exception being Cook of Bloomington, IN.

While the expiration of patent protection for Bracco's iopamidol two years ago opened the door to increased generic competition (SCAN 3/5/97 and 5/22/96), the fact is that there has been little erosion of the U.S. market position of the two leading nonionic x-ray contrast suppliers, Mallinckrodt of St. Louis and Nycomed Amersham of the U.K. The sole-source contracts Mallinckrodt and Nycomed have in place with the two largest U.S. GPOs, Premier Health Alliance of Westchester, IL, and Novation (formerly VHA) of Irving, TX, respectively, wrap up about 70% of the market for these suppliers.

Efforts by GPOs to build the commitment of their members to supply agreements have had a substantial impact on the price of contrast media, according to Nancy Walsh, director of clinical contracting for Premier.

"The shift (over the last several years) has been that GPOs in the healthcare market have a much stronger position in terms of compliance and commitment," she told SCAN. "In order to help leverage future negotiations, you really have to have a strong commitment to your existing contracts."

But this is not to say that competition, both real and potential, has had little impact on the x-ray contrast market. GPOs have taken advantage of the threat of lower cost generic contrast agents to increase their leverage in negotiating costs down.

"As patents expire, the market calls for a price reduction, and we respond to that at the same time everybody else does," said Bill Lammers, senior product manager for imaging products with Novation.

Pricing freefall. The largest drop in pricing for nonionic x-ray contrast media occurred in 1996, when patent protection for iopamidol expired. That was also the year that Premier switched contrast suppliers from Nycomed to Mallinckrodt.

"I believe that the first drop in price occurred when we signed our agreement with Mallinckrodt," Premier's Walsh said. "We dropped pricing immediately by 30%."

Overall nonionic x-ray contrast prices in the U.S. fell by half in 1996, according to Smita Thakur, medical analyst at Frost & Sullivan of Mountain View, CA, and author of the recently released market research report World Contrast Media Markets. The unit price of nonionic agents has dropped by 70% from its height, closing in on the price levels commanded by ionic agents.

"It (nonionic x-ray contrast) used to be priced at around $100 per 100-mL quantity," she said. "Now it is around $30, as compared with $5 to $12 for 100-mL quantity of ionic."

That shift of cost differential between nonionic and ionic x-ray agents, along with clinical indications of safety concerns from the ionic technology, has changed purchase patterns drastically. Novation, for one, now purchases more than 90% of its x-ray contrast in the form of nonionics, Lammers said.

Novation this year negotiated a 25% reduction in contrast media prices with its partner, Nycomed, in a deal that involves MR contrast as well as nonionic x-ray contrast. Novation began the year in transition to its new organization, which was formed by the merger of VHA's GPO and University HealthSystem Consortium. Nycomed had been a sole-source supplier of contrast to both VHA and UHC prior to their merging. Keeping those relationships through the transition was no doubt of importance to the supplier.

"I think Nycomed looked at our relationship, knew we were coming into a merger with another large organization, in which they also had a vested interest, and probably took that into consideration," Lammers said.

While not breaking down its figures to specify x-ray contrast, the pharmaceutical industry market research firm IMS America of Plymouth Meeting, PA, has also seen a substantial drop in contrast media pricing in the U.S.

"Over the last three years in the hospital market, we have actually seen a 13% decrease in dollars spent on imaging agents, but a 20% increase in units shipped," said Robert Quinlin, senior product manager for IMS America.

Contrast media for x-ray and CT make up the bulk of the world contrast media market, according to Frost & Sullivan's Thakur. Out of a total world market of $3.9 billion for contrast media, x-ray and CT agents accounted for $3.4 billion.

Growth is strongest, however, in modalities with new contrast applications, particularly MRI and ultrasound, she said. While the total contrast market is forecast to grow at an annual rate of 6.4% through 2004, Frost & Sullivan expects x-ray contrast market growth to be 3.3%.

No generic invasion. Competing in a U.S. contrast media market dominated by GPOs and characterized by stable to declining pricing is not for the faint of heart. Investing large sums in a well-trained sales force and a stable of contrast products is de rigueur when competing for the GPO business. That is one reason the market has not witnessed an invasion of suppliers of generic iopamidol.

One generic supplier that received Food and Drug Administration clearance for its generic iopamidol and tested the U.S. waters last year is Faulding Pharmaceuticals of Elizabeth, NJ (SCAN 12/18/96). Although it had received the FDA's go-ahead, the water was too cold for Faulding, according to spokesperson Andrew Berdon. Faulding has decided not to sell its Australian-made iopamidol in the U.S.

"Market pricing, combined with some long-term relationships that the lead companies have with the group purchasing organizations, has made it economically impractical for us to be competitive in the marketplace," Berdon said.

On the other hand, Abbott Laboratories of Abbott Park, IL, is getting ready to make an entrance into the generic iopamidol market in the U.S. with its FDA-cleared product, according to Eric Waehner, market manager for diagnostic imaging (SCAN 2/18/98). Abbott is currently gearing up its manufacturing of the agent.

Abbott is not new to the contrast media market. The firm has been selling Schering's Ultravist x-ray nonionic agent and Magnevist MRI agent in cooperation with Schering's U.S. subsidiary, Berlex Imaging, and has a relationship with Sonus Pharmaceuticals for ultrasound contrast. This multimodality focus should be appealing to GPOs eager to bundle supply contracts, Waehner said.

"The last three group-purchasing bids I have seen have bid MR and iodinated contrast together," he said. "One of these hasn't been (decided yet), but the other two were awarded to single organizations that could supply both sides of the house."