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Last month GE HealthCare offered further details of its upcoming IPO with the release of its Form 10 registration statement. The document offers an overview of the vendor’s plans for the business and the strategy it will adopt after it lists publicly as a separate entity. After the spinoff GE HealthCare will be comprised of four segments: Imaging, Ultrasound, Patient Care Solutions and Pharmaceutical Diagnostics. With these segments it hopes to continue along its global path and capitalise on the current macro health trends.
This document is illuminating, offering a level of detail not before seen while GE HealthCare was part of the broader conglomerate. The Form 10 statement also offers hints as to how transformative the spin off will ultimately be to GE HealthCare.
The Signify View
There are many who will have first read the news of GE HealthCare’s spinoff, when it was first announced in November 2021, and thought to themselves ‘about time’. Before the move was announced, back before the ‘C’ of HealthCare was capitalised, there was a sense that being part of the broader GE umbrella was constraining the potential of the healthcare giant. It could, as an independent company be more focused and reactive, only concerned about the changing dynamics of the global healthtech markets, and not having to fret over the ramifications of developing trends in segments over which it has no control.
More substantially, in addition to being freed from this burden of concern, GE HealthCare will also be freed from the financial burden of supporting GE’s other businesses. In the past, the profits that have been hard won by GE HealthCare have been subsumed by the broader GE conglomerate to be frequently spent elsewhere in the wider business. Such a model meant that GE HealthCare had to adopt a more risk averse attitude when it came to investing in its own business. Freed from this obligation, one of the most exciting prospects for the vendor, and one which is mentioned throughout the Form 10, is the ability to become more acquisitive. GE HealthCare has made some moves of late, in imaging in 2020 and 2021 the vendor bought out Prismatic Sensors and BK Medical respectively. The former to secure supply of advanced sensor technologies for GE’s upcoming photon-counting CT system, and the latter to bolster GE’s already comprehensive ultrasound offering.
While sensible, these acquisitions were not strategically transformative in the way that Siemens Healthineers’ acquisition of Varian, Philips’ acquisition of Carestream or Canon’s acquisition of Toshiba Medical Systems is. GE’s acquisitions supplement and improve existing revenue streams rather than opening entirely new opportunities. Freed from the broader GE’s oversight, such significant acquisitions are now a possibility.
As detailed in the Form 10, post-IPO GE HealtCare’s business will be comprised of the below segments:
- Imaging: portfolio of medical imaging solutions including CT, MR, molecular imaging, X-ray, women’s health, image-guided therapies, enterprise imaging software, service capabilities, and digital solutions
- Ultrasound: ultrasound consoles and probes, handheld devices, intraoperative imaging systems, visualisation software, service capabilities, and digital solutions
- Patient Care Solutions (PCS): monitoring, anaesthesia and respiratory care, maternal infant care, and diagnostic cardiology solutions, as well as consumables, service capabilities, and digital solutions
- Pharmaceutical Diagnostics (PDx): imaging agents that include contrast media and radiopharmaceuticals that enhance diagnostic images
GE HealthCare can now embark on such endeavours, but whether it should is an entirely different matter. This largely depends on its chosen target for acquisition. There are opportunities to make profound, if not transformative change through the acquisition of companies that plug holes in its portfolio, and better allow GE to offer solutions that address disease states and specific clinical care pathways. Such deals could make sizable progress in helping GE HealthCare achieve its headline ambition of focusing on precision medicine.
While potentially on a smaller scale, such moves would mirror some the sector’s most successful acquisitions, in which vendors have acquired companies which operate in allied areas where there are clear synergistic advantages to the combination, but with very little duplication of capability. The acquisition ideally adds something substantive and new, which sits snugly alongside existent business.
This suggests one of the pitfalls that GE HealthCare would do well to avoid; looking for a quick win by making an striking acquisition, but instead of quickly adding a standout new business and revenue stream, simply lumbering itself with significant challenges in integration and execution.
One area where this risk is particularly apparent is with regards to GE HealthCare’s digital play. In the Form 10 filing, the digital solutions were present across all business’ segments, rather than being established as a vertical of its own, hinting at how digitisation is considered by GE, as more of a “facilitator” in each business unit, than a product in its own right. While GE may be tempted to make a grand acquisition to address these limitations, such a move could offer limited benefits. GE HealthCare, after all, already harbours significant digital capability, and any sizable acquisition is likely to confuse matters and stymie successful integration and delivery, rather than immediately strengthening the company’s offering.
This is particularly pertinent given that digital solutions is one area where GE holds considerable, potential. It is a segment that brought in almost $1.2bn in 2021, a large proportion of which was derived from its imaging informatics offering. It has worked in recent years to offer a far wider brace of tools however, with its Edison data aggregation platform and Command Centre product, for example, representing some of the tools that GE hopes will add more value across the business. Such digital tools will become increasingly critical to GE as it embarks on its drive toward a more comprehensive precision medicine offering. While incremental improvements of image quality and the use of AI to extract more data will have an impact, of far greater significance is the ability to bring data from various sources together, connecting disparate streams to offer a more complete view of an individual patient.
However, at present many tools out of GE’s 200-application-strong digital portfolio are more limited in scope. Many of the tools are focused within single units or businesses, and have not made the rapid progress toward a more connected, centralised digital platform play that may have been hoped. Similarly, it also appears that GE is also facing some turbulence with the legacy components of its digital portfolio, with deals being lost and even notable scaling-back in some markets. Both of these challenges will not easily be solved, but the financial flexibility offered by the IPO could well leave greater levels of investment for such products. With such investment, GE could expand on the strengths in its portfolio such as Command Center and use them to better bridge the individual silos.
Such a move could be particularly important amidst the growing trend for the decoupling of software and modality. While major modality vendors are making progress on the operational workflow and edge AI sides, for example, the core image management platform is now frequently being handled by an independent specialist vendor. Post-IPO investment could help stem this transition and better allow GE HealthCare to capitalise on its enormous installed base. GE HealthCare already derives most of its recurring revenues, which make up around 50% of all revenues, from its service business. Growing its digital business will bolster this recurring revenue further; an important consideration given investors’ appetites for such ongoing incomes.
What’s more, greater investment in digital capability will help GE HealthCare towards one of its other primary ambitions: margin expansion. Focus on these higher margin products also enables GE to capitalise on the high growth potential of digital tools, as well as the recurring revenues they offer. A trifecta of advantages that will be music to the ears of GE’s potential investors, and a nice complement to investment in other high margin parts of the business, such as Ultrasound.
In a similar vein, this and other investment in innovation will likely help GE HealthCare secure another key source of recurring revenues: managed service agreements with providers. Being seen as an innovator is crucial in convincing providers to enter into an extended contract, after all, a vendor is not judged solely on the competitiveness of its products available today, but also on the expected competitiveness of its products 10 or 15 years into the future. Beyond offering sustainable revenues, such partnerships also help maintain a vendors’ technical excellence. Further, vendors are not able to offer truly useful products, without first understanding what providers truly need. To understand this, close relationships with providers must be earned and maintained.
GE HealthCare’s upcoming IPO will not suddenly solve all of the business’ challenges, indeed it will, in some cases, bring barriers to the company, forcing it to be more open about the particulars of its operations and removing some of the security that comes from being part of such an enormous conglomerate.
This is not expected, nor is it necessary. Despite the challenges ahead for GE, it is still among the leaders, if not the leader in many of the markets in which it operates. While there are parallels to similar moves from other vendors such as Siemens Healthineers and Philips, which were also once part of broader conglomerates, the motivations and possibilities are not directly comparable, and so it is unhelpful to try to divine its future by looking at the success and travails of those vendors. This is particularly true given GE’s comparatively greater presence in emerging markets. It is a strategy which today, amidst global economic turbulence, gives it greater exposure to risk than would have been the case a decade ago when the ambition was first conceived.
Instead, what GE HealthCare must do is focus on execution. The IPO will give it greater flexibility and financial control, enabling it, for arguably the first time, to truly chart its own course and grow into the vendor it alone aspires to be. Whether this means myopically focusing on several areas in which it aims for technical leadership, or capitalising on its strength in digital tools to become a more valuable partner to providers, or jumping headfirst into precision medicine and pin its entire strategy around that, is entirely up to GE.
All of these are possible. Now there are no excuses, and nowhere to hide from scrutiny, GE HealthCare must now not only share its vision with investors, but deliver on it as well.
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