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In late April GE announced its first quarter earnings results for 2022. In its Healthcare business, the company saw total revenues of $4.4bn for the quarter, a figure 2% higher than for the equivalent quarter a year earlier. This figure was comprised of $2.26bn from equipment, and $2.11bn from services.
Orders remained strong for the vendor, which, at $4.8bn, were 8% higher than in Q1 21. However, GE Healthcare’s margin, at 12.3%, came under pressure from continued supply chain disruption and material inflation.
During the results presentation GE also gave an update on the spinoff of GE healthcare, which is scheduled to go ahead in early 2023. Company CEO and Chairman, Larry Culp highlighted that GE Healthcare was working on “developing long-term plans to accelerate top and bottom-line growth as an independent company”, but where exactly should these plans focus? What, in short, are the opportunities for an independent GE Healthcare?
The Signify View
There are occasions when the spinning out of a company is wholly transformational. Instead of being beholden to a corporate parent’s rigid structure, budget stringency and overarching direction, companies can take charge of their own destiny. In these instances, a newly independent vendor can revel in its own freedom, acting nimbly to create and then realise its own vision. For GE Healthcare, however, the picture is less dramatic. While it does, as Culp explained at GE’s Investor Day, present a “once-in-a-lifetime opportunity to take a 100-year-old company…and optimise it”, the company has been keen to emphasise the importance of continuity, and that transformation will occur in only specific areas where it is necessary.
Part of the reason GE Healthcare can emphasise continuity is thanks to the work that has been going on under the conglomerate umbrella. It has for example been paring off businesses that aren’t integral to its long-term vision such as Clarient in 2015, and its BioPharma business in 2020. While less dramatic, this process mirrors the streamlining that GE Healthcare’s chief competitors, Philips and Siemens Healthineers, have undergone as part of their own transitions into the healthcare companies they are today.
This continuity also means that some of GE’s biggest opportunities as an independent company are the same as when the vendor was part of the larger conglomerate. As healthcare is increasingly focused on precision care, and is reliant on an entire ecosystem, the likes of GE Healthcare cannot rely solely on the sale of equipment to drive growth. Instead, the vendor must look to capitalise on the interface between different hospital systems.
In this regard, GE is performing strongly. It is making headway with its Edison Digital Health Platform, part of GE’s digital business which contributed around $1bn to the company in 2021. This vendor-agnostic hosting and data aggregation platform, alongside its Command Center software and other digital tools could become a major differentiator for GE. Siemens Healthineers and Philips both have tended towards cultivating specific clinical areas at which they excel relative to their peers, but GE has taken more of a generalist approach, performing strongly across the board, without any clinical areas in which it is significantly differentiated.
Although not a clinical area, GE’s platform and ecosystem strategy, including its native digital tools, could fulfil this role. Efficiency is key, particularly as providers are struggling under the weight of the backlog of elective procedures in the wake of Covid-19’s peak. Providers are willing to invest in solutions that improve their efficiency. Hardware will offer some benefits in this regard, but digital solutions which are able to bring together disparate systems within a providers’ network and present clinicians with a wealth of aggregated and indexed patient data will have the greatest impact. GE’s Edison platform will help to enable this, integrating and utilising datasets and capability that has traditionally been siloed, offering interoperability solutions and facilitating the useful deployment of AI.
Successfully fulfilling these goals will, however, prove challenging. Its closest competitors have also been wrangling with similar platforms and, in several instances have been struggling to meet their own digital integration targets punctually. This complexity only increases as a vendor attempts to target different markets. In Europe, for example, where there are numerous health services across the region, frequently with differing EHRs and different implementations of such systems. GE’s tools such as Command Center are flexible in this regard, enabling deployments to be adapted to different providers’ needs.
Precision medicine is a central pillar shouldering the strategies of all the major imaging vendors, but the implementation and exploitation of this very broad ambition is very challenging. Compared to its peers, GE Healthcare is progressing well, particularly focusing on data aggregation and integration, and care pathway tools.
There are, however, some aspects of precision medicine in which GE is behind. Despite its recently announced partnership with Elekta, the American vendor is still not as strong in oncology therapy as Siemens Healthineers, whose Varian business is increasingly beneficial to the German vendor. As precision medicine becomes more widely implemented, Siemens’ ownership of Varian is likely to bring further advantages, with a closer integration between the increased data and diagnostics facilitating improved therapy choices.
Siemens Healthineers achieved such therapeutic prowess through acquisition. Similarly, Philips has expanded its image-guided therapy portfolio through a series of acquisitions. Freshly independent from the broader conglomerate such an acquisition would now be possible for GE Healthcare. Instead, of a buoyant Healthcare business supporting other ailing parts of the conglomerate, GE Healthcare can now increasingly invest in its own strategic aims. In the near term at least, this option to make significant strategic acquisitions does not appear to be one which GE will take, with the vendor noting only that it intends to make “tuck-in” acquisitions.
Despite its apparent conservatism, this is a sensible approach. As mentioned, GE Healthcare has already undertaken a process of streamlining. What’s more, separating GE Healthcare, a company with almost 50,000 employees across the world, will be complex enough. The vendor will be forced to direct some of its attention internally, risking losing focus on some of its markets for a spell as it completes the spin out. This potential for distraction will only be exacerbated by a major strategic acquisition. However, this could be an option in the future as GE Healthcare seeks to minimise gaps in its portfolio, with, for example, surgery and therapy two areas that the vendor could look to bolster in future.
Renewed and Refreshed
As well as these factors surrounding GE Healthcare’s products and strategy, there are also wider considerations which will impact the vendor’s future. Both GE Healthcare and the broader conglomerate have seen a number of leadership changes over recent years, which will no doubt have led to a lack of strategic clarity, as different personnel sought to lead the company towards their own targets. This will have been exacerbated by the restrictions the healthcare vendor will have felt under the broader company. As a company freed from the conglomerate, Healthcare could undergo something of a rejuvenation. Although following a strategic path largely laid out previously, its newly found autonomy and ability to invest wholly in itself will be refreshing, heralding new enthusiasm for those at GE.
There will of course be a price to pay for this freedom. GE Healthcare may not have the same access to GE’s wider technological competence in areas adjacent to healthcare such as additive manufacturing, robotics and broader digital tools, while the vendor will not be able to rely on its sister companies in times of difficulty, as GE’s aviation business relied on healthcare in the wake of Covid for example.
These, however, are small prices to pay, for such a move. GE Healthcare’s spin-off will not see the healthcare vendor rebuilt from the ground up with new missions and mandates. Instead, it will ultimately allow more flexibility and focus in order to meet the strategic objectives previously laid out, many of which are shared with its competitors. The fruits of this labour will not be seen for several years, with all moves of this size requiring time to ferment, but, longer term, GE Healthcare will emerge a stronger, leaner company. Until those fruits are realised, for GE, it is just a matter of working away.
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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