Tag Archives: Fujifilm

Signify Premium Insight: Fujifilm’s Roadmap to Reality

It will soon be the second anniversary of the completion of Fujifilm’s acquisition of Hitachi’s medical imaging business.

The deal, which was first announced in 2019 for a value of $1.55bn, saw Fujifilm bolster its medical imaging portfolio, adding CT and MRI capability and expanding its ultrasound capability to complement Fujifilm’s strong X-ray, endoscopy and IT offerings. By acquiring such capability, Fujifilm aimed to be able to compete more closely with medical imaging’s leading vendors, GE HealthCare, Siemens Healthineers and Philips, allowing the Japanese vendor to tender for large, multi-modality deals.

Integrating one business into another is a long-term process, but, as the second anniversary rolls around, what progress has been made so far?

Signify Premium Insight: The Right Path for Fujifilm

Fujifilm recently announced it was taking its partnership with Inspirata to the next level, with an agreement to buy the vendor’s digital pathology business for an undisclosed amount.

The Japanese firm has been working closely with Inspirata on digital pathology since the vendors entered into an agreement in 2019. Since then, the pair have worked together to supply digital pathology services to customers across Europe including the NHS; a project that, based on the decision to acquire, looks to have been successful.

Fujifilm’s move comes as the importance of digital pathology is growing in imaging IT deals, with imaging IT vendors increasingly offering digital pathology capability.

Signify Premium Insight: Vendor Financials Roundup – The Health of the Imaging Sector Q2 2022

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Medical imaging vendors, like their counterparts in other industries, are having to tackle challenges that haven’t had to be faced in years or even decades. Some of these are universal. Inflation, for example. In some countries inflation is at levels not seen in forty years, energy costs have hit new highs impacting manufacturing and shipping, and logistics headaches continue to disrupt supply chains. Some problems are more specific to healthcare such as staff shortages and staff burnout after the toll of the Covid-19 pandemic and enormous backlog of elective procedures that are yet to be undertaken.

Given this gloomy outlook, it would be natural to expect that these challenges are being reflected in medical imaging vendors’ bottom lines, however, for the most part, their Q2 financial results appear remarkably robust.

 

The Signify View

Almost across the board, vendors have reported revenues higher than they did so in the equivalent quarter a year ago. In most cases these gains are modest, with GE HealthCare, for example, seeing growth of 1.4% while Philips saw growth in its diagnosis and treatment business of 1.9%. However, even given the size of the increases they are still notable, particularly given that for the same quarter a year earlier the market was performing strongly and had largely recovered from the lows seen in 2020 at the pandemic’s peak. Other vendors are seeing even more pronounced gains, with Shimadzu’s Medical Systems group and Konica Minolta’s Healthcare group seeing rises of 11.9% and 12.2% respectively.

There are several reasons for this outwardly surprising robustness. Chief among them is the natural delay inherent in healthcare procurement. Medical imaging, as with healthcare in general, tends to react slowly to changes in the market. Contracts are increasingly lengthy, procurement plans are in place well before they are acted upon and, barring unusual spikes such as that caused by the Covid-19 pandemic, demand is consistent and predictable. As such, wider trends that will, in time, come to have an impact are not yet severely damaging medical imaging vendors’ bottom lines. This could well change over time as economic challenges at hospitals start to filter through to their purchasing plans and therefore medical imaging vendors, while these vendors will at the same time be hit by supply-side costs, with energy, raw materials and logistics all becoming more expensive.

In response to these rising costs, vendors will raise prices. Several vendors referenced this in their financial presentations, with some even producing schematics to illustrate the price increases in the short-to-mid-term, as pricing measures chase cost increases to restore margins. The results of these price increases will not be felt right away. This is both a reflection of the implementation of the increases, but also stemming from vendors’ willingness to accommodate the budgetary challenges of providers.

Results to Order

Another factor supporting the financial results of medical imaging vendors is that a glut of orders seen in Q3 2021, which vendors’ boasted about in their financial presentations for that quarter, are presently being turned into revenues. This wealth of orders was the result of both the supply chain issues that plagued vendors for much of last year and the fruits of emergency Covid-spending that providers began to wield against the backlog in procedures rather than Covid-care itself. The rapid inflation seen over the last year will have compromised the margin vendors could have expected from these orders, but they have at least helped sustain revenue growth.

As these orders are fulfilled, vendors will need to carefully watch their order books. In doing so they will be best placed to react quickly and balance their need to raise prices and sustain margin with customers’ ability to pay. At present, for most vendors, order books continue to look healthy. In its presentation, Philips boasted of an ‘all-time high orderbook’, Canon noted record order levels for its Medical business, Siemens Healthineers mentioned ‘very good growth in equipment orders’ and GE referred to 1% order growth, albeit comprised of 5% service order growth and a 1% decline in equipment order growth.

Demanding Clientele

Medical imaging vendors do, at least, have the luxury of continued demand. The disruption caused by the Covid pandemic means that providers are servicing a backlog of both elective procedures and other delayed imaging exams, with for example, screening programmes paused amidst the pandemic. To meet this elevated demand, providers are, for the time being, willing to invest in equipment that is proven to deliver improved operational efficiency, both on the hardware and software side. This willingness is, in many countries, and for the time being, supported by post-pandemic economic stimulus packages. As economic pressures mount, governments could reduce or remove this extra spending, impacting hospitals’ ability to purchase new equipment and therefore presenting a challenge to vendors. This is likely to be further exacerbated by the servicing of the procedural backlog. As the size of the backlog diminishes, so too does the necessity for new equipment.

As these effects take hold, vendors will have to react. That could mean simply becoming more aggressive on pricing, focusing on value product ranges or becoming increasingly flexible with regards to payment schedules and purchasing options. Regardless, it is unlikely that this demand will be sustained indefinitely.

So the World Turns

Another factor that held significant sway over the fortunes of medical imaging vendors over the quarter was the regional differences. In some cases this proved a boon, with, for example, Japanese vendors Fujifilm, Canon, Konica Minolta, and Shimadzu all benefiting from the depreciation of the yen, making their products more affordable in export markets.

In other cases, the trends were less favourable. Unlike many major markets, China continued to enforce Covid restrictions in some regions throughout the quarter. Such restrictions severely impacted vendors’ fortunes in the market. This not only manifest in the form of weaker sales, with declines in revenue for a number of vendors, but also added to the logistical problems vendors faced. Philips, for instance, noted that production at several of its Chinese factories, as well as those of its suppliers was suspended for two months during the quarter. This exacerbated supply chain challenges and increased costs, as well as impacting the vendor’s ability to pursue sales activities in the region. One of the only vendors to have enjoyed growth in China was Mindray, which saw overall revenues improve by more than 16% in the quarter. While still affected by lockdowns, the domestic market offered the vendor an advantage compared to some of its international peers. This is likely to continue in the future given the economic conditions which benefit domestic companies, as well as Chinese initiatives such as the Thousand Counties policy and Sunshine procurement plans which can, either directly, or incidentally support Chinese healthcare vendors.

Chinese firms such as Mindray are also looking to target emerging markets such as India. Now could be an opportune time for the likes of Mindray to capitalise, particularly if large international vendors look to limit their exposure to some markets amidst increasing economic volatility. Conversely, in the case of India, Chinese vendors may also find they have increased competition from Indian companies, while themselves facing increasingly protectionist procurement policies.

Accepting the Flow

Such details are, however, eddies in the broader currents of medical imaging. More generally, despite the economic headwinds, vendors are in a relatively strong position. Margins may have to temporarily be sacrificed in the near term to secure and store raw materials and components to ride out disruption to supply chains, and to absorb price shocks and offer flexibility to customers. Vendors may also choose to sacrifice some opportunities for rapid growth in emerging markets in a bid to reduce their exposure to the subsequent volatility and to be able to devote themselves to their core, established markets. Such moves, however, are priced into vendors’ outlooks, a fact reflected in their financial forecasts which remain steady or show only a slight decline.

Ultimately, these vendors exude stability amid broader economic volatility, and will do so for at least 12-18 months. Beyond this, the levels of inflation, energy prices, stability in emerging markets, geopolitical challenges, government spending priorities, staff shortages and recruitment challenges, additional waves of Covid-19 and backlogs for diseases like cancer make forecasting difficult. In these times, the onus is on the leadership teams at individual vendors to be able to capitalise on their strengths. Vendors will, in essence, be forced to chart their own courses.

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Signify Premium Insight: Annalise.ai, Fujifilm and the Perils of Living on the Edge

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 Research. To view other recent Premium Insights that are part of the service please click here.

Co-written by Dr Sanjay Parekh & Bhvita Jani

Earlier this month Australian AI vendor Annalise.ai announced that it had partnered with Fujifilm Australia to offer its CXR Edge solution on the Japanese vendor’s portable and stationary X-ray machines.

The move will enable Fujifilm to distribute versions of Annalise’s comprehensive decision support solutions that are made to be embedded on medical imaging hardware in Australia, as well as in other select markets such as New Zealand, the United Kingdom and India.  Two variants of Annalise’s CXR Edge software will be available to healthcare providers. One, CXR Edge Comprehensive, can detect 95 clinical findings and is designed for use in inpatient, outpatient, and emergency settings. The second, Annalise CXR Edge Critical Care detects 35 findings, and is designed to be used in trauma, emergency, and intensive care settings.

The Signify View

Time is the enemy when it comes to many medical conditions. As such there is a great premium placed on devices and technologies which can save clinicians time and allow patients to be treated more quickly. While efficiency is an important consideration for all X-ray exams, it is often most important for those conducted using mobile systems, which are frequently used in emergency rooms and in other trauma settings. In these situations, doctors need to be alerted to time-critical conditions (e.g., pneumothorax) quickly, so embedding an AI solution to identify these conditions directly on the modality makes sense. In doing so, possible bottlenecks stemming from processing delays or network reliability issues are sidestepped, allowing doctors to see the results of the AI seconds after acquisition. What’s more, embedding AI tools on the modality itself also avoids the requirement for any additional IT infrastructure (e.g., dedicated servers), a factor that could be particularly beneficial in some emerging markets such as India in which Fujifilm has a strong presence.

Fujifilm is not the first medical imaging vendor to take this approach, GE Healthcare, for example originally released its Critical Care Suite in 2019 which also embedded medical imaging AI on the device. The key difference however are the tools’ remits. GE’s Clinical Care Suite is focused only a smaller number of findings (endotracheal tube placement, pneumothorax triage, quality assurance tools), while the Fujifilm and Annalise combination addresses up to 95 findings. This could prove far more attractive to providers. Mobile x-ray systems are often not dedicated to one specific department, instead being used for multi-disciplinary purposes amongst different clinical applications. Offering a wider range of solutions could therefore be a competitive advantage. This is especially true given the challenge of embedding multiple solutions from multiple vendors on the same device. It is likely unfeasible to have numerous separate solutions embedded on the modality, so a multipurpose, comprehensive system is arguably a more realistic way for providers to benefit from such a wide range of capability.

Patient Waiting

However, despite these advantages, AI solutions embedded on the scanner still have some drawbacks comparted to their PACS-deployed siblings. One of the main disadvantages is that they are unlikely to receive upgrades as frequently. Whereas a PACS-based system will usually receive both feature updates and refinements remotely, frequently bringing both new capabilities and improvements to AI solutions, edge AI solutions are more likely to be left running older versions. This is particularly true if the modality doesn’t have cloud connectivity. This could not only leave radiologists relying on outdated software, but also makes performance issues more likely. This is a particular issue given the nascency of AI adoption and the impressive rate of development.

While Fujifilm is initially offering Annalise’s CXR solution in Australia, it also has plans to offer it in other parts of the world, including India. Here, and in other emerging markets, this lack of updates is unlikely to be a significant issue. On the contrary, these are likely to be some of the best opportunities for embedded AI systems. Many emerging markets have, after all, a distinct shortage of radiologists, and increasing volumes of images. In some situations, having even an outdated version of a comprehensive solution embedded onto an X-ray system could flag critical cases and expedite treatment, rather than the images languishing until a radiologist is available to read them, possibly resulting in missed diagnoses. This is particularly true for the critical care version of the software, which, although detecting 35 findings compared to 95 for the comprehensive solution, is focused on detecting time-sensitive conditions that require immediate treatment.

Earlier is Better

Further, the use of embedded AI is also likely to bring financial benefits to providers. Early detection isn’t only good for patients, it will also facilitate the earlier treatment of patients, which in many cases will save a patient having to undergo more serious, and more expensive treatments.

This will be especially true in single-payor health systems where there is a greater incentive to reduce costs, but private markets such as the US could also benefit. Missed radiological findings can be very costly. Not only because of the added care costs, but also because of the costs of litigation. The fact that the embedded AI tools may help to note findings missed or seen at a more progressive stage by a radiologist, therefore have the potential to save providers considerable amounts of money lost in lawsuits.

Despite this potential, how willing providers will be to pay for such capability remains to be seen. This could depend on how Fujifilm chooses to offer embedded AI. The vendor could add the capability at no extra cost as a way to sweeten a deal and encourage a hardware purchase, alternatively, Fujifilm may choose to only offer it on its highest-end systems in a bid to differentiate the systems in its lineup and encourage customers to spring for the more expensive, higher-tiered systems. Additionally, Fujifilm may also consider upselling these edge solutions across its install base, generating a new source of revenue and enticing potential customers to its AI-enabled premium fleet when their contracts are up for renewal.

Taking the Subscription

The Japanese vendor may also explore some more innovative options such as ongoing subscriptions. Such deals could result in more of a partnership between Fujifilm, Annalise.ai and the customer, ensuring that providers have the support they need to maximise the value they are deriving from the systems. This could also benefit the vendors by turning transactional hardware sales into sticky subscription revenues. It would also overcome the issues of upgrades and would ensure that customers continually benefit from the latest version of the software.

Such a move would be particularly valuable at present. Fujifilm, as with other vendors which offer mobile X-ray systems, capitalised on the demand for the modality during the Covid-19 pandemic. As detailed in Signify Research’s General Radiography and Fluoroscopy Equipment report, global revenues derived from mobile digital radiography systems increased to almost $750m in 2020, up from $413m in 2019 as a result of pandemic-induced demand. Fujifilm, like other vendors will look to continue to capitalise on this spike, and will hope to continue to derive revenues from this expanded install base. Offering AI solutions under a subscription could be one tool that helps the vendor achieve it.

However, regardless of which options are utilised, embedding AI on modalities will not be a huge revenue generator in and of itself for either Fujifilm or Annalise. Fujifilm will boast of the capability to snag some extra deals and upsell to some customers in Australia, but the bigger opportunity lies when it is able to sell its products in India and other emerging markets. Fujifilm has some form in these regions, with its products tending to be more affordable than those of the likes of GE Healthcare, Philips and Siemens Healthineers, while it has also shown it is happy to use innovative methods to try to create business in these areas. In this context, offering embedded AI which seamlessly supplements a limited number of radiologists could be very beneficial. This is particularly true given that Fujifilm has adopted a partnership model. This will give the vendor flexibility to offer different tools in different regions (e.g., Fujifilm has already partnered with Lunit in Mexico and across some regions of South America) or abandon partnerships should better alternatives become available elsewhere.

For Annalise on the other hand, its focus remains on its fuller enterprise-based offering. Offering mobile versions of its solution embedded on mobile X-ray systems will help grow its market share and could serve as an introduction to the company for some providers, but, in isolation, such deals will never allow the vendor to live up to its lofty valuation. Instead, it must focus on selling to providers, with any embedded deals merely an additional revenue stream.

Ultimately it is a smart move, but not one that will have a huge market impact. More significantly, it shows how AI can be embedded into solutions, but these best of breed integrations represent only a small part of a market blessed with numerous approaches. Living on the edge remains a choice not a necessity.

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Signify Premium Insight: Vendor Financials Roundup – The Health of the Imaging Sector Q1 2022

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 Research. To view other recent Premium Insights that are part of the service please click here.

One glance at a newspaper leaves no doubt about the volatility of the world’s economic health. Every day, troubling stories adorn the front pages: shocking rates of inflation, dramatic retreats for some blue-chip stocks, soaring energy costs, the ongoing defence of Ukraine from Russian invasion, continuing coronavirus restrictions in China and extended disruption to chip production and supply chains amongst others. Reading these headlines, it would be natural to assume that medical imaging vendors will be feeling bearish, shouldering the burden of a hard start to the year and preparing to dig their heels in for the long, fallow months ahead.

This assumption, would however, be incorrect. While vendors have been unable to completely avoid these global headwinds, they have, as illustrated in their first quarter financials, largely been able to mitigate some of these challenges.

The Signify View

This is true, of, for example, the supply chain headaches that have been wreaked on the world primarily by the turbulence of the coronavirus pandemic and countries’ responses to it. Although these supply chain challenges have been noted by almost every vendor in their quarterly results, they have not significantly impacted revenues, with most vendors still showing year on year growth. Siemens Healthineers, for example, noted a 150 basis point headwind compared to a year earlier, up from around 100 bps in the previous quarter. However, in the vendor’s Imaging Segment, this translated to an adjusted EBIT margin of 20.2%, down from 21.1% a year earlier, but still a strong figure, particularly given the 10.7% increase in revenue.

This pattern was echoed elsewhere. GE for example saw comparative growth in its Healthcare business of 2%, although profit margin fell 260 bps to 13.6%. Philips’ also saw its EBITDA margin in its Diagnosis & Treatment segment fall, to 9.5% from 12.3% a year earlier, although the Dutch vendor didn’t enjoy the bounce in revenues, which fell 2% year on year.

How vendors have been able to cope with these difficulties in logistics and procurement has been affected by several factors. Some of these are reliant on the vendor’s management of the difficulties such as identifying new suppliers, modifying stock levels and even redesigning or reconfiguring hardware to avoid overreliance on particularly in-demand components and materials. These opportunities for leaner processes will not be able to stave off shortages indefinitely and will require time and effort to implement, but they will help mitigate difficulties in the near term, while, in many cases, also leaving businesses more efficient for the future.

Mixed Risks

Vendors have less control over other factors. One of the key differentiators are the product mixes that imaging companies entered into this period with. Vendors who are more reliant on high volume, high-profit modalities such as ultrasound and clinical care devices will have been more drastically impacted than those skewing towards lower volume, higher value modalities. This is one of the reasons for the weaker performance of Philips compared to some of its peers.

These troubles have been particularly pronounced to vendors with greater exposure to certain markets. Canon, Konica Minolta and Shimadzu, for instance, are most reliant on their home market of Japan. Canon’s Medical segment saw total sales decrease by 5%, while income before taxes plunged 45.2%. This was largely down to supplementary government spending a year earlier, diminishing provider appetite in 2022, a factor that will have been keenly felt by all Japan-centric vendors.

Of course, pressure in foreign markets will have also hit other vendors’ revenues. Group revenues for Siemens Healthineers in the quarter, for example, fell 10% on a comparable basis in China as the country continued to face strict Covid 19 regulations. It’s a similar story for GE, which also recognised the challenges the region presents in its own announcements. However, unlike the Japanese vendors, Siemens Healthineers, GE Healthcare, and others with exposure to a greater range of international markets were better able to withstand these regional challenges. This highlights a key objective for Canon and Fujifilm; namely, reducing their reliance on a single market. The vendors are already working towards such ambitions, and it is no way an easy objective, but these results highlight its importance. For example, Canon has signalled that the USA is a key growth market for the company, and it is currently overhauling its sales organisation and expanding its sales force.

Inflated Concerns

Another of the key economic concerns for many industries is the spiralling inflation that, after many years of languishing at or near record lows, has leapt dramatically. As with any broad economic change there are countless subtle and often unknowable impacts. However, in this case there is good reason to think that the increased inflation could have a positive impact for many of the large medical imaging vendors.

One of the key trends in medical imaging has been improving the efficiency of the acquisition and analysis of diagnostic images. Some products and technologies have enjoyed success on the back of this trend, with the increased requirement for some types of procedures caused by the Covid 19 pandemic, and the enormous backlog of patients it created particularly driving adoption. The dramatic rise in inflation, and in particular the increase in wages demanded by healthcare professionals means that productivity is once again in the spotlight. This emphasis is expected to drive growth across vendors’ product ranges as providers seek to add capacity. This growth could be particularly noticeable for top-tier systems, which providers could well be more inclined to consider as their features, which help increase productivity, could offset their higher price tag. Such inflationary challenges could, therefore, herald a modest, but noticeable bump for modality vendors, and in particular, those whose portfolios skew towards particularly time-consuming exam times such as MR and CT.

This effect will be most noticeable in acute care in private markets, notably the US, where wage inflation is more significant. In single-payer markets, where wage increases are likely to be more constrained by government policy, the demand for new systems and tools to improve efficiency and automation will be more muted.

Favouring the Familiar

These broader economic and geopolitical challenges bring other reasons for cautious optimism among the largest medical imaging vendors. In times of geopolitical stability and bullish economic outlooks, there is a greater appetite for risk among many cohorts including financial investors and healthcare providers. This readily available capital helps young disruptive companies to grow, while the boldness of providers means that they are more likely to invest in the solutions touted by these young disruptors, potentially at the expense of other longer established vendors. In times such as the present, where economic uncertainty haunts procurement discussions, providers are unlikely to turn their back on a trusted supplier in favour of one that is unproven. This preference for the familiar will provide solace to large imaging vendors, which could have otherwise been threatened in key markets by disruptive start-ups, or quickly growing foreign players such as United Imaging.

Vendors can capitalise on providers’ preference for the familiar even further and look to bolster their service deals. Providers will be increasingly open to more integrated managed service partnerships, with such deals offering them predictability from a procurement and cost perspective, but also the ability to derive more efficiencies through the fleet management and operational workflow advantages that such partnerships can unlock. In these tougher economic times, when many providers are inundated with procedures postponed by Covid, the importance of minimising downtime, and extracting maximum value from equipment and personnel is increased, all of which can be gained through managed service partnerships.

Budgeting for Service

Vendors can also use the agreements to increasingly embed themselves at providers. By offering more comprehensive packages, of which service plays an ever-larger part, vendors can look to benefit from a hospital’s broader operational budget, a fund far greater than the radiology budgets which they would have historically looked to target.

Vendors can also look to strengthen their ties to providers and effectively lock them in for longer-term deals. As well as offering efficiency and operational improvements, large vendors will also be able to leverage their size to offer flexible payment plans. Offering early upgrades or effectively financing equipment purchases for a hospital, as part of longer-term deals.

This opportunistic thinking has been seized upon by many vendors, several of which have raised their guidance for the year, in part on the back of continuing strong order intake, which, for many vendors, continues to provide support and reassurance even given some of the immediate challenges they face.

More broadly too, the largest medical imaging vendors should feel reassured by the latest quarterly figures even as the world economy looks to be stalling. They will no doubt face some challenges, and they must continue to overcome some obstacles, but that is the nature of business. In the longer term, this volatility is an opportunity which they are best placed to benefit from. They, unlike many of their smaller peers, have the scale, diversity and cash reserves to persevere and gain ground while others falter. This may mean sacrifices in the near term, accepting lower margins or sacrificing niche opportunities in the name of focus, but, if they can hold their nerve and deliver on their promises, they could position themselves perfectly to capitalise when the winds change.

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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 Research. To view other recent Premium Insights that are part of the service please click here