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Signify Premium Insight: Vendor Financials Round-up – The Health of the Imaging Sector Q1 2023

Whisper it, if you must, but it seems that for the first time in several years, medical imaging vendors have been able to enjoy a comparatively uneventful quarter. Since the Covid-19 pandemic first took hold in early 2020, it has seemed that every quarter has been rocked by some global macroeconomic drama. Whether the pandemic itself and its resultant restrictions on elective procedures and non-urgent imaging, the supply chain disruption and logistics nightmares, spiraling energy prices as Russia invaded Ukraine, or the dramatic inflation which has rocked much of the world, it has not been an easy period to steer a medical imaging vendor forward.

Now, however, in the first quarter of 2023 many of these disruptions seem to have abated somewhat, enabling medical imaging vendors to return their focus to business as usual, rather than fighting fires as they arise. Further, some vendors had to make difficult decisions, downsizing workforces and adjusting strategies following the beatings the previous years doled out, with these changes made, vendors are better equipped to face the year to come.

Signify Premium Insight: Vendor Financials Roundup – The Health of the Imaging Sector Q3 2021

This Insight is part of your subscription to Signify Premium Insights – Medical ImagingThis content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here.

The third quarter of 2021 has been impacted less by the coronavirus pandemic than any of the previous six. This is evidenced in the financial results of the major medical imaging companies which shows that vendors are, by and large, progressing steadily along the recovery curve and in many instances showing growth for the trailing 12 months in the upper single digits and beyond.

One of the vendors that did, at first glance, appear to struggle, was GE Healthcare, which posted year on year growth for the quarter of -5%. However, this negative growth figure was, in part at least, a result of a tough comparable quarter, with last year’s $300m ventilator order for its Life Care Solutions business proving hard to match. This fall, however, was at least partially offset by increased volume in Imaging and Ultrasound. Despite this, the figure still stands in sharp contrast to those of its closest competitors, Siemens Healthineers and Philips, which posted growth figures of 12.7% and 10% in their respective Imaging and Diagnosis and Treatment businesses.

Of more concern than a tough comparable quarter in 2020 are the supply chain issues that GE pinned most of the blame for the negative growth on. GE was not alone in suffering from such problems, with players in industries as diverse as carmaking and meat production all being affected. The vendor did highlight that it was working to minimise the disruption, citing the example of its CT team in Japan that has worked to reduce production lead time by 40% from when parts are received compared to a year ago, but these initiatives have so far been unable to offset the challenges being faced. Canon was another vendor that highlighted this problem. Although the Japanese firm posted a year-on-year improvement just shy of ten percent, the vendor noted that the figure was still below its expectations.

Medical imaging vendors have, for the most part, performed strongly over Q3 2021. N.b. While Fujifilm Healthcare did enjoy organic growth and saw a ‘surge’ in revenue, the acquisition of Hitachi Ltd.’s diagnostic imaging-related business also contributed to its dramatic quarter-on-quarter growth.

Order from Chaos

GE Healthcare’s decline does look set to be short-lived, however, with it, and several other vendors highlighting remarkably robust order books. GE reported year-on-year order growth of 21% globally. Philips boasted comparable order growth of 15% in its Diagnosis & Treatment business in the third quarter, Siemens Healthineers highlighted that it had booked more than Eur20bn of order intake in its FY2021, Canon’s medical segment mentioned that it was building up its order book for the coming year, while Agfa described its order book as ‘healthy’.

The strength of these vendors’ order books is a result of several factors. The aforementioned supply chain issues are among them, with providers being forced to place orders for purchases that cannot be made right away. There are also other more pervasive trends having an impact.

One of the key reasons is the continuing Covid support packages from many governments. In countries with publicly-funded healthcare systems, providers are still benefitting from additional funding that has been allocated over the last 18 months. These providers have already spent heavily on equipment such as ventilators and patient monitors that was urgently needed during the worst of the pandemic, now their focus has turned to the enormous backlog of patients waiting for postponed elective procedures. To address this backlog many providers are investing heavily in imaging equipment, seeking to take advantage of both additional systems, as well as the efficiency improvements that newer equipment can offer.

This glut of orders is also present in privately-funded markets, although here providers are spending to take advantage of the backlog, which represents a significant revenue opportunity, much needed for many following the difficulties of the past 18 months.

Maintain the Chain

This increase in demand was noted by many different vendors. Fujifilm mentioned the demand of its ultra-lightweight mobile digital x-ray systems and ultrasound devices, both Philips and Siemens called out the popularity of their CT systems, Agfa mentioned the demand for its healthcare IT solutions and Konica Minolta highlighted the success of digital radiography and diagnostic ultrasound, among others. This, almost universal demand for medical imaging devices is obviously good news for medical imaging vendors, although there are also some risks.

Supply chain issues could continue to blight performances, and if one vendor is particularly struggling to supply equipment, then orders could leak away to competitors, similar to providers’ prioritisation of availability above all else in the digital radiography market during the height of the pandemic (a trend discussed in more detail here). Essentially, supply chain management and logistics is, in many ways, set to be the most crucial factor over the coming 12 months.

There are other clouds on the horizon too. While many governments have prioritised investment in new medical imaging systems, few seem able to address the shortage of radiologists. Longer-term this shortage could increasingly bite, with the purchasing of additional systems coming to an end when there is a lack of radiologists, technicians and other imaging professionals to use them. This shortage means that over time vendors will have to focus on other factors peripheral to the imaging systems themselves in order to boost their revenues. Improving efficiency and workflow, offering AI capability that will assist in some of the less complex and time-consuming tasks, and increasingly offering services as part of deals, are factors that could make a significant difference in coming years, given that the rapid rise in equipment demand can only last so long.

The worst of the pandemic’s volatility appears to be over, with vendors squarely into recovery.

Major Market Focus

One feature of this quarter’s results was that much of the commentary and discussion was centred around developed markets, with little attention directed elsewhere. Emerging markets often provide palpable growth when there is a lack of opportunity in more established markets. At present, however, many healthcare providers in emerging markets are particularly stretched financially. This combined with the more volatile nature of these markets, and the simple fact that vendors’ largest markets are enjoying unrivalled demand, means that the focus is elsewhere.

One market that is growing is China, but this has been more beneficial for some vendors than others. The two Chinese vendors tracked for this Premium Insight, Beijing Wandong and Shenzen Mindray both enjoyed year-on-year growth in the quarter above 20%. According to the latter this was a result of predominantly domestic growth, stemming from China’s ‘unprecedented’ medical investment in the wake of the coronavirus pandemic and a large expansion of public hospitals. Given China’s strategy of favouring local vendors, domestic companies have been the main beneficiaries of this investment. However other international vendors also performed strongly in the country, with Philips, for example acknowledging revenue delays, but touting mid-single digit order growth for the quarter. The vendor also said it expected prospects to improve further as regulatory guidelines in the country ‘become clearer’.

Time to Eat

Despite this nuance, when all is said and done, it has been a lucrative quarter to be a medical imaging vendor. While there have been weaker spots, AGFA noted a ‘softer’ quarter, for example, and Sectra saw revenues dip compared to the previous quarter as it experienced its usual quarter-to quarter variability, but these are minor hiccoughs in what is currently a booming market. The challenge for vendors will be how they can continue to capitalise on this very strong demand and ensure that nothing prevents them turning this demand into revenue. This will mean ruthless supply chain management and ensuring that there are no hurdles in producing and delivering medical imaging systems.

Vendors will be keen to make the most of this demand, which appears robust enough to support strong performances for the coming quarters. However, in servicing this demand they should maintain an eye on the future. The time will come when government spending boosts end, hospitals are left with more restricted budgets, providers have purchased all the medical imaging equipment their staff is able to utilise, and vendors will have to find more creative ways to grow.

Until then, the famine of the pandemic’s peak is past. Now is the time to feast.


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This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here