Tag Archives: Outlook

Signify Premium Insight: Futures for the Faithful – Vendor Sentiment Index Q3

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As a young and quickly evolving segment of medical imaging, the AI market is more liable than most to be buffeted by both global headwinds and localised eddies. Amidst these challenges, which include inflationary pressures, the risk of faltering economies and stretched healthcare systems, there are also reasons to be optimistic.

The challenges that providers are facing such as staff shortages and huge backlogs of patients may give impetus to adopt new technologies, while regulatory clearances, investor backing, and greater availability of reimbursement highlight the growing regard in which the nascent market is held. Whether vendors themselves are confident in these opportunities is another matter, one which is explored in the latest Vendor Sentiment Index survey, a key deliverable of Signify Research’s AI in Medical Imaging Market Intelligence Service.

 The Signify View

The latest Vendor Sentiment Index survey, which was conducted between July and September 2022 assesses the confidence both imaging IT vendors and AI independent software vendors (AI ISVs) have in securing pilot sites, commercial sites and the overall market in the coming quarter (Q4, October to December 2022) and the coming 12 months (October 2022 to September 2023).

Broadly, the level of confidence vendors hold is stable, with some, ongoing patterns apparent, such as AI ISVs being overall more optimistic about their prospects, than the more tempered views of the imaging IT vendors – an unsurprising difference given the attitudes needed to launch a start-up into a nascent market. There were also some notable changes, however.

Last quarter’s Index, for instance, saw imaging IT vendors hold, in general, an altogether more pessimistic view of the market. An assessment that has since recovered, with the vendors harbouring more positive views. There are several causes for this dip and recovery, the most likely of which, as suggested in the last quarter’s analysis, is simply that there is less activity over the summer months given summer holidays and decision making often delayed until the autumn. The current Q3 index, which, assesses vendors attitudes towards Q4, is not impacted by these seasonal slowdowns, giving vendors a greater opportunity to make both agreements for commercial deals and for pilot sites.

That isn’t to say that there were no impacts particular to the quarter. Both ISVs and imaging IT vendors are far more confident in their commercial prospects in the coming 12 months than they are in for the upcoming quarter. This may be largely a result of RSNA 2022, which, as a major showcase for both AI and imaging IT vendors, absorbs a significant amount of resource. This effort, which can lead to traction at pilot sites and commercial success in the longer term, does however, hamper vendors’ abilities to focus on commercial opportunities in the nearer term.

Confidence Gap

There was one area that diverged from trends established in previous quarters. In past surveys there has been a relatively stable gap in the different types of vendors’ confidence in their ability to secure pilot sites over the coming months. This is reflection of the typically more bullish attitudes held by ISVs, often hungry start-ups, which only operate in one area, and whose entire reason for being is their belief in the potential of AI. In the latest survey, however, the confidence levels of imaging IT and ISVs has almost completely converged, AI ISVs are relatively far less confident than they were in previous quarters.

This suggests that the pilot site pipelines of AI ISVs are running low, and these vendors are struggling to garner much new interest in adopting their solutions on even a trial basis. Again, part of the reason for these thinning pipelines, beyond the known macro challenges of limited resources to assess AI adoption at providers struggling with long waiting-lists and budgetary shortfalls, is likely to be RSNA, which represents a rare opportunity for these vendors to network and expand their reach and so is requiring of their focus. Imaging IT vendors appear to be less affected by this problem. They also have better-established customer bases, an asset they will be able to tap into to secure pilot site agreements. What’s more, compared to many AI ISVs, the customer bases that imaging IT vendors have, furnished the vendors with solid reputations. An invaluable tool when attempting to convince a provider to be a test case for complex new technologies.

A Consolidated Future

While this is merely a single data point, and conclusions should be drawn gingerly, it does suggest the advantages that imaging IT vendors have compared to many ISVs. Trust is essential in adopting a new technology, particularly from an unfamiliar vendor. While imaging IT vendors can leverage the trust built elsewhere, through other products, AI ISVs must build this trust themselves. This is why clinical validation studies and standout performances at pilot sites to garner positive testimony is crucial. The AI market is likely to become very quickly dominated by incumbents, and smaller start-ups will find it increasingly difficult to gain traction, so any vendor that does not want to risk falling behind must push forward quickly to claim share while it is still available.

This also ties into one of the longer-term trends of market consolidation. Over the coming 12 months, the confidence level of securing a pilot site of the most pessimistic imaging IT vendors was 5/10. The figure for AI ISVs on the other hand was 2/10. This very low level of confidence among some dedicated AI vendors emphasises their worries about securing pilot sites, a necessary precursor in many cases, to commercial rollouts. Given the dwindling funding of some AI vendors, the lack of confidence in even the first stage of commercial deals suggests that some firms may begin to struggle over the next 12 months, perhaps finding themselves turning to acquisitive companies to save them from perishing. For those unable to turn the tide, a market exit or pivot may be looming, but one which can be overcome following a buoyant RNSA show, raising further capital, or even securing reimbursement for their solution.

Converting Pilots

Other AI ISVs are perhaps guilty of another sin: overconfidence. While imaging IT vendors are more confident around pilot deployments in the coming 12 months than commercial deployments, AI ISVs are almost exactly as confident in securing commercial sites as they are in securing pilot sites. This optimism may well be misplaced. Aside from the fact that some pilot sites may not derive the expected value from their deployments the sales cycle, which is typically 9-12 months means that any upcoming pilot sites are unlikely to be converted to commercial sites within the coming 12 months assessed by the survey. As such, it suggests they are very reliant on the conversion of their current pilot sites into commercial sites. This is particularly true given the lack of confidence in securing future pilot sites.

There are factors that could change this picture. New products launched and new partnerships entered into at RSNA will help propel the market forward, as will any additional reimbursement for the use of medical imaging AI solutions, which appears to be gaining momentum. Such changes could well see confidence levels rise among vendors as they would move toward achieving commercial traction. But even so, these changes will favour the better-established AI ISVs compared to the long tail of smaller vendors that will, over time, bear the brunt of the anticipated market consolidation.

Ultimately however, while there is variation and pessimism in some quarters, Q422 and the year ahead harbours a lot of opportunity. AI ISVs have the first RSNA in several years to not be overshadowed by Covid-19 to target a large and likely receptive audience, while imaging IT vendors have had opportunity to understand what their clients want from AI and consider how they can best support their users with the technology. Questions surrounding affordability and value remain, which will ultimately lead to consolidation in the market. But, for those more establish and larger vendors that have covered all the bases, invested in clinical validation and health economics studies, and worked to establish their credentials, they can be confident of making headway as interest in AI continues to grow.

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Signify Premium Insight: The Fate of the Five

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As the world emerges from the clutches of the coronavirus pandemic, the turbulence that has characterised the last few years has lingered. From supply chain headaches and shortages of critical components to the inevitable economic repercussions caused by Russia’s barbaric assault on Ukraine, stability is in short supply. While less dramatic, the medical imaging markets are also in a period of flux. Some vendors have enjoyed unexpected windfalls from Covid-related products, while others have seen sales, at times, decimated due to restrictions at providers. Furthermore, medical imaging sits on the cusp of the widespread adoption of several hugely impactful technologies, including machine learning, cloud computing and data-driven healthcare.

How vendors respond to these circumstances could define their fortunes for years to come; below is our assessment of where each of the five largest medical imaging vendors (GE Healthcare, Siemens Healthineers, Philips, Fujifilm and Canon) stand, and where their opportunities lie.

GE Healthcare

Portfolio & Portfolio Integration

From an imaging modality perspective, GE has among the broadest product portfolio of any of the top five vendors, with strength across a broad range and the ability to sell into both the wards of large academics and integrated networks, and at lower tiers and into emerging economies. Unlike some of its peers, GE has no single clinical or product sectors where it dominates, or offers products of unique quality, but as an accomplished generalist can meet the needs of a wide range of customers.

The vendor’s digital strategy, meanwhile, is less robust. While there is still the breadth of capability offered, and good coverage of the core imaging IT products, GE’s success in the integration of these separate products has been less successful. The vendor has increasingly recognised this issue, as evidenced by the release of products such as the enterprise imaging-focused Edison True PACS software, but this response has been relatively sluggish. The vendor has held a large share of the market for a long time, but that share is slowly being eroded. Whether GE can stem this customer leakage is dependent on how well it can deliver on the newer, better connected, data-driven facets of imaging IT. If it is unsuccessful, these weaknesses, which will become increasingly more important, will cause customers to look elsewhere, a concern for the division given it plans to be spun-out in 2023.

New Digital Technologies

AI is set to be among the most transformative technologies in medical imaging in the coming years, and GE is treating it as such. The vendor has taken a centralised approach to AI development, using a common team and platform (Edison AI) to efficiently deliver useful AI tools to the different modality departments. This has meant it has focused less on creating stand-alone AI products per se, but instead has been able to efficiently and effectively offer AI functionality to all of GE’s imaging modality teams, while also leveraging its strong position and channel in Advanced Visualisation software.​ The company was also early to market with a radiology AI platform, Edison Open AI Orchestrator, to support the deployment of native and third-party AI applications. ​

Another of the rising trends in medical imaging and the broader healthcare sector is the adoption of cloud capability. In this regard, GE is performing very similarly to its peers in that it is offering cloud-enabled products, but does not offer comprehensive cloud-native solutions. At present this has not hindered GE Healthcare. While technological capability is one driver for cloud adoption, business model flexibility is at present a more significant driver. As such, GE, like its peers, has, for the most part been able to meet customer needs without reverting to cloud technologies. That said, recent cloud-native releases such as Edison True PACS highlight the vendor’s cloud-focused approach, which potentially gives it the edge over some of its direct competitors.

Recent Performance

As highlighted in recent Insights assessing vendors’ financial performances, GE Healthcare has arguably been adversely affected by industry-wide challenges to a greater degree than its peers. Operationally, factors such as the supply chain disruption has been more challenging for GE compared to the likes of Siemens and Philips. GE Healthcare is also more exposed to emerging markets than several of its peers. Markets which could become more challenging as the repercussions of the Covid pandemic continue to bite.

Outlook

GE Healthcare is, all things considered, in good shape. It has competency across the board and scale to ride out the current headwinds. The vendor does have its weaknesses, it has gaps in its therapy range compared to Philips, and cannot match Siemens’ Varian-based oncology offering, for example. It must acknowledge these weaknesses and act accordingly. That could manifest as acquisitions to improve its digital integration or therapy offerings, greater focus on the central AI platforms that connect the predominantly distinct tools or recalculate supply routes and logistics strategy to minimise the impact of disruption – an area where the vendor has lost ground to its peers.

More pertinently, GE must continue to push forward with its longer-term aims, despite the day-to-day challenges that are impacting the medical imaging market. As well as needing to continue to integrate its digital offering to keep customers from bleeding away and invest in its AI and cloud products to ensure it remains a leader rather than a follower. The vendor also will need to navigate the complications of a spin off from the wider GE conglomerate and successfully integrate BK Medical, the fruit of a recent acquisition, into its fold. Managing these priorities will prove difficult, opening itself to bold gambits from competitors who see a distracted rival. But, over the long term, the fruits of this effort will render it a nimbler outfit, with capability among the broadest out there and the might to seal deals of any size whenever the opportunity presents itself.

Siemens Healthineers

Portfolio & Portfolio Integration

Compared to some of its competitors, Siemens Healthineers has some areas within its imaging portfolio which are not performing as strongly as the wider business. Its ultrasound business, for example, has a reasonably broad range of products, and reasonable market share, but has been losing ground for some years. Signify Research’s latest Ultrasound Equipment – World Market report highlights that the vendor had, in 2020, actually lost market share in its key radiology/general imaging and cardiology markets.

Despite this, however, Siemens has both a wide-ranging portfolio and is amongst the pinnacle of the market when it comes to the advanced imaging modalities. As well as driving forward with new technologies, having been the first to commercially offer a photo-counting CT system, the vendor is also adept at innovating further down product line ups to create and capture market share, with its recently MAGNETOM Free.Star designed to bring MRI capability to new locations.

This modality focus has, however, meant that its core imaging IT software has been slow to meet the clear trend of enterprise imaging consolidation . This has been apparent in several regions, with North America a particularly challenging market for the German vendor. More recently, however, Siemens seems to have identified and acknowledged this weakness, and has delivered several products which not only bolster the vendor’s capability (it holds strong global share in Advanced Visualisation) but brings it together into a more integrated offering. This has been effective in multiple areas, but progress in workflow and operational efficiency, have been particularly well-received.

New Digital Technologies

Siemens Healthineers sits alongside GE as one of the vendors with the most advanced native AI offering. Unlike GE however, Siemens has taken a different approach, focusing first on the common frameworks, such as AI Rad Companion, into which further capability will be able to grow. This more integrated approach contrasts with other vendors which, for the most part, have adopted a platform plus marketplace strategy. Siemens has more closely integrated its algorithms into its broader platforms, which, for the large imaging vendors such as Siemens, appears at present to be the strategy which is delivering the most promising results.

Despite Siemens’ strategic differentiation when it comes to AI, the market is not yet mature enough for this approach to have a significant impact on sales. However, as AI use becomes more integral to medical imaging workflows, Siemens’ strategy could pay dividends.

Recent Performance

Siemens Healthineers has arguably been the strongest performer over the past year. While it has, like other vendors been affected by supply chain issues and chip shortages leading to the sacrifice of some margin in its latest quarter, it has also managed to maintain revenues and growth.

Additionally, Siemens Healthineers has also been among the vendors that have been keenest to create and nurture managed partnerships. Such partnerships have allowed Siemens to both protect market share and increase the portion of revenues which are taken on a recurring basis. In doing so, Siemens is favourably positioned to weather difficult conditions.

Further, while not directly related to imaging, Siemens Healthineers has also benefitted from what is effectively a Covid windfall, with its antigen testing bringing a one-off cash boost to the vendor and lining its coffers in readiness for offensive or defensive action.

Outlook

Siemens Healthineers is going into 2022 in the best shape of any of the leading medical imaging vendors, with a slight reduction in margin the only real indicator of difficult times. Siemens also has some aces up its sleeve for the future. As time passes the vendor’s acquisition of Varian is increasingly proving its worth. With ever-increasing requirement for cancer care and Siemens’ ability to join up the diagnostic and therapeutic sides of oncology this advance is set to continue ever more effectively. This clinical integration also puts Siemens in a unique position, with no other vendor yet managing to join diagnostic imaging and therapy in quite the same way.

With its windfall from antigen tests, Siemens Healthineers is also in a strong position to make additional acquisitions. As has been achieved with Varian and to a lesser extent Medicalis, Siemens could look to bolster its offering with another sizable acquisition, further broadening the capability it can offer customers.

There are challenges; development of its digital offering and the march towards a more complete enterprise imaging solution needs to be a priority, but otherwise, Siemens Healthineers is looking strong.

Philips

Portfolio & Portfolio Integration

Philips has a full portfolio across the modalities, with everything from handheld ultrasound to MRI available from the vendor. The only significant concession it does make to any of its peers is in photon-counting CT. Philips does offer spectral CT, a tool of a similarly premium status, but at present it doesn’t yet offer commercially an alternative to Siemens’ latest innovation. The photon-counting CT market is still very small, so Philips is unlikely to miss out in the immediate future, but it will become more significant, highlighting the importance of Philips successfully commercialising its own photon-counting CT technology. For some categories, such as mammography, Philips has essentially relied on partnerships to fill its range, but for any gaps in an MRI or CT line-up, such a strategy would not fly with customers.

Unlike some of its peers such as GE Healthcare and Fujifilm, which are more generalist in their approach, Philips has worked to offer excellence in several key areas including cardiology and interventional imaging, while still offering a broad portfolio in other areas. These are set to be growth drivers over coming years, so the vendor is well placed in that regard.

Things are less rosy on the software side. While it has all the important pieces, and strength in some key areas such as operational workflow, the integration of disparate parts is proving difficult. This appears to be particularly true with regards to its Carestream acquisition. While the acquisition brought improved technology to Philips, the integration has taken longer than originally anticipated, suggesting that some expectations for the technology have been either been unmet or were more complex to architect than expected. While it seems Philips is emerging out of the other side of this process based on recent product announcements, whether customers have kept the faith will only become apparent in the next few years.

New Digital Technologies

Unlike Siemens Healthineers and GE Healthcare, which have primarily focused on developing AI tools in-house, Philips has instead chosen to partner with medical imaging AI vendors. Even on this front, however, they are somewhat behind their chief competitors, with their AI Orchestrator platform only being released at RSNA 2021. This measured schedule has at least resulted in well-executed products, somewhat making up for the slower schedule.

One of the reasons for this sluggishness is that Philips has chosen to rebuild its entire software offering. Longer-term this will arguably pay dividends, as the vendor’s entire software catalogue can be architected from the ground-up, as a broad, cloud-native enterprise imaging solution with solid AI integration. However, this is still some years off, leaving Philips in a sort of holding pattern until then, doing enough to avoid losing market share to hungry specialists, but not yet unleashing its solution’s final form. Ultimately, Philips has started to lay a lot of groundwork, but the fruits of that labour are yet to be realised.

Recent Performance

As detailed in Signify’s recent analysis of vendor’s latest financial results, Philips seems to be prioritising margin over the conversion of orders to sales. The vendor says it hasn’t yet lost a customer through such an approach, but this could become more difficult over time if supply chains cannot be restored, and providers are forced into long waits for their equipment. For the time being, however, Philips’ medical imaging business is performing strongly.

There are distractions elsewhere in the business. The recall of certain Philips’ ventilators (DreamStation and specific Trilogy solutions) may not immediately impact the company’s imaging business, but ventilator revenues were another of those unexpected Covid windfalls which could have left Philips ready for a large opportunistic acquisition. The recall of the ventilators could therefore limit the vendor’s ability to capitalise on potential opportunities near-term.

Outlook

Philips has strength in its admirably broad portfolio. What’s more, several areas in which it is strongest such as interventional and cardiac imaging are set for above industry average growth. Further, while it may not have made any headline grabbing acquisitions in the therapeutic space on the scale of Siemens’ Varian move, it has made several smaller “tuck in” acquisitions of therapy device companies over recent years, as well as some very solid partnerships such as that with Varian rival Elekta, which have left it in a strong position moving forward.

However, it must, as efficiently as possible, fully complete the integration of Carestream. Upon which it can not only increasingly leverage the capability it gained from the acquisition, but, as significantly for the longer term, then begin to focus on its next targets. Rounding out its AI offering and re-building its core products to capitalise on the new trends of cloud capability and enterprise imaging.

Canon

Portfolio and Portfolio Integration

Canon’s combination with Toshiba Medical Systems, a deal which was completed in early 2018, has bolstered the Japanese vendor’s modality offering, with the deal bringing together two largely complementary product portfolios. With regards to the advanced modalities, the vendor arguably lags behind Siemens and Philips, lacking the very top draw innovative products that those vendors lead in. Similarly to Philips, Canon does have its strengths, with cardiac imaging capability, acquired from Toshiba, an area where the vendor stands out.

One modality in which Canon does see growth is in ultrasound. While the vendor is well represented in its domestic market, the company has recently become more aggressive on price in order to further penetrate the North American and European markets. Many vendors have comparable products in ultrasound, so price is one of the few levers Canon has at its disposal. Success will be hard to come by in this market, with there being limited differentiation between it and its immediate competitors, but if it is to enjoy the longer-term service revenues that increased footprint brings, it is a critical objective.

Canon’s digital offering is also relatively strong in places. The vendor has been trying to build on its prowess in advanced visualisation and broaden its offering into a fully-fledged enterprise imaging product. However, these efforts have not yet gained significant traction in the market, leaving the vendor with a competent core package, but without a sizable market share. Of bigger concern is the lack of operational tools, a component which is becoming increasingly important to securing larger, higher-value deals.

New Digital Technologies

While Canon offers a competent core platform, it is starting to fall behind when it comes to newer digital technologies. It hasn’t made the same progress with AI development as the standouts GE and Siemens, and lacks many of the tools those vendors offer, although is making headway with workflow tools. Across imaging IT however, the firm holds the smallest global share for imaging informatics of the “five” reviewed here. Canon has started to further address these gaps, however, responding with a new brand and AI strategy in November 2021. The Japanese firm hopes its new Altivity brand will improve efficiency and outcomes, with tools based on both clinical decision making and workflow, although the fruits of this labour are yet to be seen.

When it comes to cloud, Canon, like its peers has made progress. It is not at the same leading edge as the nimbler imaging IT specialists but will facilitate its customers’ transition to cloud should they request it.

Recent Performance

Over recent quarters Canon has performed strongly. As illustrated in Signify Research’s recent financials analysis both the vendors’ latest quarter and in particular its trailing 12 months showed solid growth. Canon is strongest in its home market of Japan, and as such will have been among the key beneficiaries of Japan’s Covid recovery spending, given its strength in modalities used in Covid care, and more internally focused procurement policies.

While this boost will end as extra funding to fight the pandemic runs out, and providers have all the systems they need, the growth in Canon’s installed base will grant the vendor opportunities for service revenue and upselling opportunities for years to come.

Outlook

Canon is performing strongly in its domestic market, it has a broad, reasonably-well integrated portfolio, with competence across most modalities and core software components, and a few areas of excellence. The vendor has also performed strongly setting it up for reasonable domestic revenue growth in the coming years.

However, despite this strength the vendor finds itself in a sort of stasis. There is limited opportunity for growth at home, which means the vendor needs to look further afield, but without a unique selling point it could struggle to gain traction. Without an area in which it is the hands down leader or can quickly grow its enterprise imaging platform share, it is hard to see what is going to entice North American and European providers to go with the Japanese vendor instead of one of the better-established alternatives.

Fujifilm

Portfolio and Portfolio Integration

Like Canon, Fujifilm has recently closed a major portfolio acquisition of Hitachi’s diagnostic imaging group. This has bolstered its portfolio bringing Hitachi’s capabilities in MRI, CT and diagnostic ultrasound alongside Fujifilm’s range of X-ray and point of care ultrasound systems. The combination leaves a large vendor with a breadth of portfolio that will enable it to compete for the larger network-wide imaging deals that are increasingly defining the market. However, this joined-up approach is yet to be fully leveraged, leaving Fujifilm with what is effectively several disparate product sets.

As with GE, Fujifilm leans toward being a more generalist, and although there are some smaller niches in which it excels, such as mobile X-ray, it doesn’t stand out in any single category, offering a safe, rather than revolutionary option for providers. Fujifilm is however aggressive on price, allowing providers to amass capability for a competitive outlay. Other vendors, such as Siemens Healthineers, are also releasing lower-cost MRI systems. While this will increase competition for Fujifilm and threaten the legacy Hitachi MRI portfolio, it will also increase the interest in MRI in non-traditional settings, a dynamic which Fujifilm could arguably use to its advantage.

This hardware portfolio is also backed up by a solid core imaging IT package, while the vendor has made good headway in its transition to enterprise imaging. As with its competitors, it has lost out to the likes of Sectra, Mach7 and Visage for large academics and IDNs in the US market of late, but this has not yet been a significant issue to seriously erode market share. Moreover, the firm has a dominant position in the Japanese domestic market for imaging informatics.

New Digital Technology

Fujifilm has invested in its AI offering, and it shows. Its ReiLI brand is competent and represents the vendor’s effort to enhance its diagnostic imaging products, with a particular focus on supporting the diagnostic imaging workflow, leveraging the combination of its deep learning innovations and utilising its expertise in image processing. Like Siemens, Fujifilm has also adopted a more integrated approach to AI, choosing to develop algorithms in-house on an integrated framework, rather than overly relying on external partners and AI marketplaces as has been the choice of some of its competitors. Over the longer term, this will likely prove a smart choice. Where Fujifilm falls down, however, is in execution. These foundations have been laid for some time, but there has, so far, been a lack of progress to highlight that Fujifilm is realising its vision.

Recent Performance

Fujifilm’s recent performance is difficult to accurately ascertain, with the acquisition of Hitachi’s imaging business and the restructuring of its business units making it hard to contextualise its filings. That said, the vendors’ strength in mobile X-ray systems and ultrasound systems will have stood it in good stead over the course of the Covid pandemic. This performance, will, like Canon, also have been bolstered by the substantial government support given in the vendor’s largest market, its home market of Japan. Further aiding Fujifilm over the pandemic is the vendors’ aggressive pricing, making it an attractive proposition for providers who have reined in budgets because of the coronavirus pandemic.

Outlook

Whether Fujifilm can continue to capitalise on these recent advantages remains to be seen. As with its peers, any additional sales during the pandemic leave Fujifilm with solid up-selling and servicing opportunities which could help to bolster growth.

More broadly, if Fujifilm is set to achieve the ambitious growth targets it laid out in its VISION2023 plan, released in April 2021, it must look to utilise its newly found breadth of offering to secure the larger, longer-term deals that its most successful competitor’s relish. It does, on the face of it, appear to be making substantial progress. In its strategy announcement it targeted revenues of 750bn Yen ($6.5bn) for its healthcare segment in FY2021. After three quarters the vendor is now offering guidance of 790bn Yen ($6.9bn) for the year, well on its way to the 860bn Yen target it has set itself for FY2023.

As with Canon, for continued growth Fujifilm must look for opportunities outside of its home market. Unlike Canon, however, which has made plain its designs on the US market, Fujifilm may look to carve out its own territory in emerging markets. With a strong network of distributors and subsidiaries, Fujifilm’s competence and price competitiveness could see it replicate the large managed service deals that Siemens Healthineers, GE Healthcare and Philips have prioritised in other markets, including India, parts of the Middle East and South-East Asia.

About Signify Premium Insights

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

Signify Premium Insight: Imaging’s M&A Falling Behind Bullish Outlook for Healthcare & Lifesciences

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 Steve Holloway

This month, KPMG published its 2022 Healthcare and Life Sciences Investment Outlook. This report assessed the trends in M&A across the breadth of the Healthcare and Life Sciences sectors. These broader market trends form a backdrop to the medical imaging markets, although, as will become evident, the dynamics of these distinct markets are not always shared.

Overall, KPMG’s report was very positive. The professional services firm found that despite the headwinds presented by the coronavirus pandemic, 2020 and 2021 in particular, were very strong on a dealmaking front. There were 1,839 deals (not counting joint ventures, minority investments and venture funding) sealed in 2021, an increase of almost 300 compared to 2019. The most active quarter was Q420, with 511 deals made. No quarter in 2021 topped Q420, but the elevated level was more sustained, with dealmaking at a higher level than any of the preceding eight quarters, spare the aforementioned Q420.

Several drivers spurred this activity. The consultancy identifying the larger vendors’ need to look to acquisitions as a way to sustain innovation and replace lost revenue from maturing products, and portfolio shaping, as two of the key drivers of M&A in 2020 and 2021. KPMG suggested these factors would continue to be a driving force in the coming year and offered a bullish prognosis for 2022, asserting that deal volumes would continue to soar. The firm noted that low cost of capital and internal pressure to deploy capital meant that around 70 percent of respondents to its survey expect to increase their M&A activity in 2022, while more than half of PE investors said they would do at least 10% more deals than 2021. There are still some reasons for caution. Further variants of Covid could lead to vendors scaling back their plans or pausing moves. More predictable factors are also set to temper activity, with a diminishing supply of attractive prospects, and companies’ need to complete and integrate the acquisitions they have already made also set to retard activity.

The Signify View

While these trends may be true for the broader healthcare and lifesciences sector, there is some nuance within individual medical imaging markets. This is true for the large international modality vendors, for example.

One of the central reasons given by KPMG for vendors to embark upon acquisitions is the requirement to expand their portfolios, expand their capability and win new business in other adjacent markets. The large modality vendors, however, already address most of the individual product subsectors, offering providers very broad capability. This means that in many instances, there are limited benefits to be gained from making an acquisition. This is further compounded by the level of consolidation in the medical imaging modality markets. GE, Siemens Healthineers and Philips, have near complete portfolios. Canon’s acquisition of Toshiba and Fujifilm’s acquisition of Hitachi, which both took place since 2017, represented the last opportunity for major, global modality vendors to significantly broaden their portfolios by the acquisition of a competitor with a broadly complementary range.

There are exceptions to this rule, with GE’s 2021 acquisition of BK Medical showing that international modality vendors are still ready to make deals. However, these deals will be predominantly “tuck-in” deals to strengthen a vendor’s core capability in a product sector, such as a vendor with strength or experience in a specific clinical application, or to acquire technology assets and IP that will support the next generation of imaging modality products.

The other predominant deal type will involve moving into adjacent areas. One of the blueprints for this type of acquisition was Siemens Healthineers’ acquisition of Varian in 2020. This deal saw Siemens Healthineers add a market leading oncology therapy and care vendor to its arsenal, enabling the sale of end-to-end oncology solutions which complemented its core imaging and diagnostics focus. Other vendors could be looking to complete similar deals, either in oncology or other segments. KPMG’s warning that few acquisition targets remain rings true in oncology though, with only Elekta and Accuray as viable Varian alternatives for radiation therapy hardware.

Adjacency Approved

More likely, one of the large modality vendors could eye an acquisition of a vendor in another adjacent area, such as entering therapy with a cardiac care acquisition, for example. Another potential avenue for investment would be in surgery. This is a further area where Siemens has already made progress, acquiring surgical robotics specialist Corindus, in 2019. Imaging vendors are already selling into surgical rooms and interventional suites, so the addition of surgical robots, a technology which is rapidly gaining traction, could be a shrewd target for one of the large imaging vendors.

A further possibility would see one of the larger Chinese modality vendors such as Mindray or United Imaging swooping in to bolster their portfolio and presence on an international stage. A previous Premium Insight discussed the rationale for United Imaging making a bid for Siemens’ ultrasound unit based on rumours present at the time. While that hasn’t yet come to pass the, the arguments for a large Chinese vendor to make such an acquisition still stand, with either a larger company’s divestiture, or even a smaller challenger vendor both presenting intriguing possibilities; a combination of Mindray and Butterfly Network, or Exo or another handheld ultrasound vendor, for example.

Buying Power

Outside of modality imaging, there is different impetus for acquisitions. The healthcare IT sector has been one of the more buoyant M&A markets over the past two years. KPMG noted that it was the second most active subsector across the wider healthcare and lifesciences space, and among the most attractive targets for investment at present. The boom in telehealth as a result of the pandemic is responsible for much of this growth, but there have also been a number of high-profile deals done with imaging IT vendors, not least of which are the likes of Nuance and Microsoft and Intelerad’s spree of LumedX, Ambra, and Insignia Medical Systems.

Dealmaking looks likely to continue within the imaging IT sector. It is a market that is mature and stable, with long deal cycles. Resultantly, the opportunities for vendors to increase their market shares organically is limited. Instead, vendors in the imaging IT space look likely to show their hands with tuck-in acquisitions in a bid to increase their market share and enable competition in larger, multi-product deals. This could see many of the smaller players, or those with strength in certain regional markets, increasingly consumed by larger players as they strive to increase their install base in this stable market, or increasingly starved off opportunities and run out of the market.

There are, however, also several larger deals to be done should an acquisitor have the long-term appetite. Change Healthcare’s imaging business could be one prize. Assuming Optum’s takeover of the revenue management business goes ahead and isn’t blocked by regulators, as seems possible given recent rumours, then Change could well look to spin out its imaging business. It is a similar story with IBM Watson Health’s imaging division. Following the divestiture of IBM Watson Health, the imaging business stands apart from the rest of the unit and could subsequently represent an attractive purchase for a vendor looking to expand its customer base and take advantage of IBM’s technology. Both vendors have reasonable market share in the prized US acute provider sector, potentially tempting an acquirer to dig into its pockets to gain a foothold.

AI Gearing up for a Feeding Frenzy?

Perhaps the most keenly observed imaging sector is medical imaging AI, a rapidly evolving and fragmented market that is starting to gather commercial pace. Many leading vendors have identified AI as an area of substantial promise for medical imaging, spurring a torrent of investment from venture capital and private equity. However, despite a gradual thinning of the field and emergence of strong potential candidates (see Medical Imaging’s Top Tier: The $100m Club), no major global imaging vendor has made a big acquisition of an AI vendor or AI orchestration platform yet; in fact, it is an imaging centre provider (RadNet) that has made the most bullish bet on imaging AI so far.

This hesitancy is due to three main fundamentals. Firstly, most vendors are still early in commercialisation and have, to date, no tangible customer base or scale to justify their inflated valuations. Secondly, reimbursement for AI use outside of a few select cases (FFR-CT (HeartFlow), CT-stroke detection (RapidAI, VizAI, et al.) has not been granted, adding greater risk to any investment requiring a long wait and uphill battle for an acquirer to commercialize at scale. Thirdly, healthcare provider customers have not made AI a significant enough priority in recent years to drive leading vendors to bring AI “in-house”. With many applications still in the pilot or assessment stage, a loose association or basic integration with existing imaging IT platforms has satiated most customers. Furthermore, the Covid pandemic has paused or extended many providers’ assessments of AI as a future investment, meaning imaging IT and modality vendors see no rush to dig deep into cash reserves to pay lofty AI valuations.

In 2022, while we expect to see a gradual consolidation of the AI segment via AI vendor to AI vendor mergers and partnerships, the oft-discussed feeding frenzy from imaging sector leaders is highly unlikely. Instead, many will stick to their holding pattern while continuing to strengthen partnerships and planning integration strategies, should the time come to aggressively acquire assets. Given the other market pressures facing the imaging market near term, some may also be holding on in the hope they can sweep up assets as investor confidence in start-up AI vendors falters and vendors burn through cash reserves quickly.

Caveat Emptor

Overall, many parts of the medical imaging market look less ripe for strong M&A activity than the broader healthcare and lifesciences sector. Several vendors have explicitly stated their acquisitive ambitions, and some vendors’ broader strategies into areas such as precision medicine and digital twins would require additional capability, but often these are more linked to the wider company rather than a vendor’s imaging division.

This run of acquisitions could peak in 2022. If these deals are to be done, vendors should focus on doing them quickly. For many of the medical imaging markets, growth is set to peak between 2024 and 2026 as the fruits of the rebound from the coronavirus pandemic, as well as purchasing based on pent-up demand take hold. If vendors are going to use an acquired company to take advantage of this growth, then they will need to do a deal soon.

These deals will happen. They may not be on the scale of some of the deals that have taken place in the past such as the combinations of Fujifilm and Hitachi and Canon and Toshiba, or of a similar complementary nature, but, as vendors look to move forward with their strategies, acquisitions will be a necessary step. However, unlike in KPMG’s assessment of the broader sector, this activity will not be universal, with imaging vendors having to be more selective in approaching what is sometimes a very limited pool of targets. Many vendors have the cash, but the creativity to make the right choices and execution to integrate is what will set them apart.

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