Earlier this month, years of planning and preparation came to fruition as GE HealthCare successfully floated on the Nasdaq exchange as an independent company. There was considerable appetite for the new entrant, which saw shares up 8% at the close of its first day trading.
While the spin off has been well received by investors, what does the future look like for GE HealthCare itself?
The Signify View
Breaking free from the wider concerns of the GE conglomerate will no doubt be both liberating and invigorating for the stalwart healthtech vendor. The move means that GE HealthCare’s destiny is almost entirely in its own hands. It will no longer have to return profits to the conglomerate should other GE businesses such as Aviation or Energy need support amidst difficult conditions in their own markets.
More significantly, however, spinning out of the larger conglomerate gives GE HealthCare a chance to stand alone as a more streamlined and reactive business, answering more readily to the calls of the markets it serves. Much of the work to remake GE HealthCare into a more focused vendor has already been undertaken. The spin-off has, after all been mooted for some time, and several times, in preparation, various units and operations have been divested. Some of these have been sensible moves; its sale of its finance unit in 2015, for example. With hindsight, however, other moves look less wise. Given the growing interest in digital pathology, the 2018 sale of Omnyx to Inspirata, itself recently acquired by Fujifilm, could have been short sighted.
Beyond this focus afforded by the spin-off, as a newly independent company, GE HealthCare will also be able to increasingly chart its own course and follow its own priorities. There are several areas where such a focus could be rewarded. Among the greatest opportunities afforded the vendor are in the development of digital tools.
GE can already boast a strong digital offering, highlighting in its financials that it derives around $1bn in revenues from its digital offerings. However, sizable opportunity remains. GE’s chief rivals, Siemens Healthineers and Philips also have strong digital capabilities, however both have tended toward building their digital prowess in specific clinical areas. GE has, however, been more generalist in its approach. With its Edison Digital Health Platform and Command Center software, GE has the chance to cultivate a broader workflow toolset bringing together disparate systems within a providers’ network in order to present clinicians with aggregated and indexed patient data.
Achieving such a system represents a considerable challenge. It would require GE to bring together capability that currently resides across a very fragmented assortment of platforms and vendors. Not only does this present technical hurdles, a front on which so far, GE has been performing strongly, it also is challenging from a commercial perspective. The broader the remit of a digital solution that is being sold, the more stakeholders are potentially involved. As such even identifying the key decision maker, let alone convincing that person that a particular solution will be most beneficial for their provider network, is difficult. This is particularly true for the likes of GE, that is targeting a broad user base. It may be able to make compelling arguments to the individual users of a system at a departmental level, but if they are trumped by enterprise-wide decision makers, whose primary concern is often cost, it could be difficult for GE, or another vendor, to make inroads. If GE is able to continue to deliver compelling digital products, and navigate this governance side of hospitals, however, it will be well placed to capitalise on an as yet untapped appetite for holistic digital provision.
Beyond such broad aims the float of GE HealthCare can also enable the company to make more significant strategic plays, including freeing capital for acquisitions. On this front GE has already made headway. One of the broader trends in medical imaging is a more integrated relationship between diagnostics and therapeutics, with the latter representing another sizable opportunity for the vendor. Last year GE announced it was buying BK Medical, an interventional ultrasound specialist, while earlier this month the vendor announced it is picking up IMACTIS, an image-guided therapy firm.
Both acquisitions will strengthen GE’s portfolio, broadening its capabilities and enabling the vendor to seal ever more holistic deals. However, while it does allow GE to offer its customers additional capability directly, it does not offer a transformative change.
This is typical of the type of acquisition that GE is likely to make in the immediate future. While the vendor has highlighted its plans to begin making acquisitions, these are likely to be additional ‘tuck in’ deals rather than the sort of deals that will reshape the business for the future.
This echoes one of the potential criticisms of GE Healthcare’s post-IPO plans, that the lack of grand acquisitions or announcements could be seen as a lack of vision or ambition. It is true, after all, that GE’s central competitors have particular areas in which, by reputation at least, they are leaders. Philips, for example, can use its strength in cardiology to open wider deals. Siemens Healthineers, by dint of its Varian acquisition, can boast the most complete oncology offering. GE lacks such a speciality, and, although there are areas in which it could hang its hat, it has not yet, at least, announced or intimated any such plans.
That, however, is OK. While the IPO presented an opportunity to share a vision, and capture more mindshare, there was no necessity. GE HealthCare, after all, leads the market in many of the segments in which it competes. It is and remains one of the global superpowers in medical imaging and the broader healthcare technology space. What’s more, despite GE now facing some headwinds stemming from its past focus of seeking growth in emerging markets, the vendor’s forecasts for the coming year are strong. Siemens Healthineers expects 2023 revenues to be essentially flat compared to FY2022, albeit including a significant hit from the expected decline in Covid antigen testing. Philips meanwhile struck a downbeat tone in its latest Q3 2022 results announcement, forecasting mid-single-digit decline in comparable sales in its Q4. GE though, seemed strong. In its preliminary Q4 results GE HealthCare noted revenue growth of 4%, and forecasted further revenue growth in 2023 of 5-7%, with margins of 15-15.5%, 50 basis points higher than the previous year.
Given such forecasts, GE doesn’t need to reinvent the wheel. Amidst wider inflationary pressures and logistic challenges, the vendor doesn’t need to make transformative changes. Instead, doubling down on its fundamentals and hitting its targets, particularly that of margin expansion, will be enough to keep investors happy. Going into its first year as an independent vendor, this is a sensible and practical strategy. Several carefully considered tuck-in acquisitions can add to these measured targets, allowing the vendor to capitalise on add-on sales without deviating from a well-defined path. While other plans, such as the considered development of certain prestigious halo products, for example can help the vendor capture headlines and maintain and elevate its status as one of medical imaging’s technical leaders.
Over time, assuming GE Healthcare does meet its targets, and none of these ancillary activities detract from its core focus, there may come a time when the company can look further ahead and strike out on a bold new journey to tackle grander, epochal health challenges head on. Until then, confident consistent capability, with just a dash of greater vision, will be enough to lay a solid foundation.