General Electric Company (GE +6.68%) has gotten the FDA go-ahead for a new three-dimensional mammography machine that may help catapult the company's healthcare division revenue.
That's because the new 3-D mammography machine may help discover more cases of breast cancer than previous-generation machines using the same amount of radiation. That advantage could position GE's healthcare business for market share growth in an industry that has been -- until now -- dominated by Hologic (NASDAQ: HOLX).
Source: GE Healthcare Flickr.
First, a bit of background
GE's healthcare business rakes in more than $4 billion a quarter by addressing the needs of patients, doctors, drugmakers, and lab workers. The unit's sales account for more than 12% of GE's total revenue; however, healthcare sales have stagnated as competition has forced the company to cut prices. As a result, sales slipped 1% year over year to $8.7 billion during the first six months of 2014.
Sliding sales came despite strengthening higher volume tied to rising healthcare utilization as the economy improves and more people get insured thanks to healthcare reform.
While GE Health's tepid revenue results are a bit disappointing, GE's healthcare division isn't standing pat. The company acquired API Healthcare for $340 million to strengthen its position in healthcare software and analytics and spent another $1 billion buying certain life-sciences assets from Thermo Fisher Scientific.
Importantly, the company is also using its experience in medical diagnostics and medical imaging (and its deep-pockets) to innovate new, next-generation technology that may be able to more quickly and accurately discover diseases such as breast cancer. In 2011, GE Healthcare announced that it will spend $1 billion on R&D over the next five years as part of its campaign against cancer.
Source: GE Healthcare.
Building better mousetraps
The FDA approval for SenoClaire, GE's 3-D mammography machine, could have a significant impact on cancer detection.
The company's previous mammography 2-D machine offered digital resolution, but not nearly the level of clarity and insight as the company's new offering. GE was able to achieve 3-D rendering thanks to a mix of software and hardware upgrades that allos the machine to take multiple images of the breast and create cross-sectional views in a sweep that takes just 10 seconds.
Importantly, GE's new machine develops these 3-D images using the same radiation dose that would be needed for 2-D imaging. That differentiates GE's SenoClaire from competing 3-D machines.
If GE Health can show that its SenoClaire works as well or better than Hologic's offering, GE may be able to win away customers and build its installed base, allowing it to generate more services revenue.
That would be welcome news for investors, given that Hologic's breast health segment is growing in part because it was the only company offering a 3-D mammography solution. Hologic's breast health product sales totaled $238 million last quarter, up 3.5% from a year ago.
Fool-worthy final thoughts
Breast cancer is the second most common cancer in women in the United States. More than 2.8 million people have a history of breast cancer in the U.S. today, and 232,000 cases of invasive breast cancer are newly diagnosed every year. A growing population and longer living seniors has the National Cancer Institute estimating that spending on breast cancer treatment could soar from $16.5 billion in 2010 to as high as $25.6 billion in 2020.
Fortunately, improving technology like 3-D mammography, which has been found to detect up to 41% more invasive cancer than traditional mammography, are credited for reducing the number of annual deaths for this disease, but more work still needs to be done.
