Tag Archives: strategy

Signify Premium Insight: United Imaging: Self-Awareness and Strategic Dilemmas

Chinese Imaging giant Shenzhen United Imaging recently released its first annual report since the vendor listed publicly in August 2022.

The figures appeared positive, with the vendor achieving a year-on-year revenue growth of more than 27%, at RMB 9.24bn (US$ 1.32bn), while net income rose almost 17% to RMB 1.66bn (US$237m).

This growth comes as United Imaging endeavours to expand into new markets, offering both new products, but also increasing its focus on international markets; an ambition reflected in the fact that the operating income the vendor derived from international markets increased by 110% compared to a year earlier, against an increase in operating income of less than 20% for its domestic business.

Does, however, the vendor’s performance and strategic priorities suggest the vendor is finally ready to go toe-to-toe with its international competitors?

Signify Premium Insight: Butterfly Network’s Problem with Popularity

The handheld ultrasound market is the fastest growing product segment in ultrasound and among the fastest growing in medical imaging. Solutions have become more refined over recent years, offering better image quality, wireless probes and advanced software, all of which are facilitating their uptake by new and experienced users alike.

Despite the segment’s growth however, one of the market’s most high-profile names, Butterfly Network, is facing a difficult spell. The vendor’s latest financial results were disappointing and its share price is just a fraction of what it was in 2021. The vendor is looking to change its fortunes, and, with the appointment of a new CEO, it hopes to rally, but is it too late?

Signify Premium Insight: To Dream and to Do – GE Stands Alone

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.

Digital Direction

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.

Acquisitive Ambition

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.

Continuing Appeal

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.

Signify Premium Insight: Philips’ Leadership Change Marks Switch From the Grand, to the Granular

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In August, Philips announced that its chief executive, Frans van Houten, is set to leave the company in October, and will be replaced by the head of the company’s Connected Care business, Roy Jakobs.

Van Houten will be leaving the top job after almost 12 years at the helm, during which time he reshaped the business from a broad conglomerate into the healthcare technology-focused business it is today. During that time shares rose from below Eur13 in September 2011, to a peak of more than Eur50 in 2021. However, since then the company’s performance has been marred by a recall of several respiratory devices. A misstep instrumental in the fall of the vendor’s share price to Eur17.

Given such adversity, will Jakobs follow van Houten’s lead, or will the transition mark the opportunity for fundamental change?

The Signify View

As with so many things in life, when it comes to business succession, timing is everything. Sadly, for many CEOs, the optimum time to hand over the reins often only becomes apparent after it has passed. So it is for Frans van Houten. Had he left the job in January 2020, the focus of the discussion surrounding his tenure would have, almost wholly, focused on his successes.

Of which there are many to choose from. He effectively navigated the complex challenges of turning a century old conglomerate, with operations in countless sectors, into a leaner business focused on healthcare technology. In doing so he shaped a growing company, with three clearly defined and complementary segments, which consistently posted healthy financial results and  technical leadership in some clinical segments.

However, since van Houten did remain in post, the adversity that has marked the final years of his leadership cannot be ignored. The most high-profile challenge has been the ventilator recall, which has affected more than 5.5m devices and cost the business almost Eur1bn, not including any litigation stemming from the recall.

However, the recall is only one, albeit the most acute, of these challenges. A more pervasive concern is the vendor’s inability to react to such challenges as dynamically as its competitors.

Time to Act

This ponderousness was also visible in the vendor’s response to the Covid 19 pandemic. While the impact of the virus was severe for all vendors, Philips’ supply chain and infrastructure appears to have been more exposed to risk, and more susceptible to disruption than its chief competitors. This raises the question of whether the vendor was too aggressive with regards to its emerging market strategy.

In a similar vein, the operational capability of Philips under the hand of van Houten could also be found wanting. While the outgoing CEO performed very strongly against broader strategic aims and realising the vision of Philips as a healthcare company, Roy Jakobs could make his mark by focusing on the minutiae. During the reorganisation of Philips over the past decade, the company made numerous acquisitions, but the full fruits of these purchases have, in some instances, not been realised from a perspective of integration.

In some cases these barriers are technical. Carestream, for example, bestowed the Dutch vendor with a range of sophisticated imaging IT capabilities. However, to derive the full value of these capabilities, resource must be expended on a complex and time-consuming integration; a process which appears to be taking longer than originally expected. In other instances, the challenges are grounded in operations and logistics, with the vendor not consolidating supply chains or standardising materials and components across the range, for example.

Jakobs could, particularly based on the evidence of his handling of the recall, be the right person to drive such operational changes, and therefore represent an ideal candidate to follow van Houten, enabling Philips to best capitalise on the latter’s vision.

Central Sway

Increasing central oversight of the sort that could enable significant operational improvements does, however, also have its potential pitfalls. In a bid to streamline processes and improve operational performance, an increasing emphasis on centralised compliance could begin to hamper innovation. One of van Houten’s key strengths was establishing and capitalising on the vendor’s leadership in sectors such as cardiology. If Philips’ research and development programmes are forced to be overly considerate of costs and operational efficiencies, their engineers’ abilities to continue to make progress could be stymied.

There are some signs that this could already be happening. At present, customers’ needs are clear. They need solutions that enable them to tend to patients as efficiently as possible, and they need vendor partners that enable such efficiency. Philips is performing strongly in this regard, and has developed solutions to aid providers’ operational workflow, and offering practical tools to enable them to improve their services such as telehealth and patient monitoring, for example. However, providers who buy into Philips’ portfolio also buy into its technical mastery and its bolder vision.

While some other vendors focused on medical imaging’s technical peak talk boldly of precision medicine and digital twins, for example, Philips risks becoming overly focused on pragmatic solutions. If this is sustained, Philips could begin to lose some of its cachet as a technical leader and begin to be considered less of a visionary and more of a workhorse brand, taking Philips directly into a category rife with cutthroat competition. This could be particularly damaging if, as seems likely, GE HealthCare, enjoys something of a rejuvenation following its spin out.

A Time for Reflection

Such existential introspection is also made more challenging by the current economic climate. Philips, like its competitors will have to deal with increasing inflation and the fine balance between accommodating customers’ squeezed budgets and raising prices to sustain margins. All this while adapting to a changing situation and increased volatility in China and other key emerging markets, lingering supply chain disruption and component shortages, and energy prices at a record high.

Given this climate, it may have been better for Philips to have retained van Houten in a bid to avoid internal change at the same time as external pressure. However, by promoting Jakobs, the man guiding the recall, Philips aims to show how serious it is about dealing with those issues. By promoting a person from within, who already has an intimate knowledge of Philips’ operations, Philips also hopes to avoid too greater disruption at a time when focus and clarity are needed. Such a move does, however, risk perpetuating rather than addressing any operational weaknesses.

Necessary Changes

It is imperative such perpetuation is avoided. Any successor must take the successful elements of their predecessor while not being bound by their approach. This is especially apt given that Philips, under van Houten’s watch, got so much right. The company is a market leader in many of the segments in which it has entered, and it has established a large, loyal customer base.

But improvements can still be made, for Philips, this means operational improvements and a focus on its vision. A change of leadership is also an opportunity for a change of attitude. Over recent years Philips has revealed ambitions around AI, or the integration of Carestream, for example, on which it has failed to deliver. Despite this, communications from the vendor at results presentations and investors’ events tend to gloss over any weaknesses, focusing only on the positives.

A change of leadership offers the opportunity to address this. Roy Jakobs could offer a more realistic alternative. He could, for instance, explain that Philips, like its competitors will be facing a difficult spell. That Philips is facing more risk than it has recently thanks to volatility in emerging markets, and that new products and new integrations have been delayed. He could also detail the progress that has been made so far and explain what customers and investors can expect next. Jakobs should also celebrate his company’s strengths and highlight how the vendor will capitalise on them, and explain how he intends to replicate that success in other areas.

Building for the Future

Jakobs could continue to build on van Houten’s efforts to streamline Philips, possibly with a sale of the Personal Care business. Although profitable, it is a segment which shares no obvious synergies with the company’s broader portfolio so such a move would likely be popular with investors.

Such realism, combined with a focus on continuing to refine the detail within van Houten’s broader vision will restore the faith of investors and customers after a challenging episode, allowing the vendor to move on and rally. This will require Jakobs to quickly resolve the recall issue which has blighted the company, as well as fixing any continuing supply chain issues so Philips can realise the revenue from its record high order book.

All this must be achieved without Philips letting slip its progress in other areas. These include increasingly pivoting to more consultative customer partnerships, leveraging HealthSuite to continue Philips transformation into a company that delivers fully integrated solutions, and looking to the future with further investment in precision medicine.

If Jakobs can make this happen, results will be seen quickly, as margins creep higher over the coming quarters, Philips returns to a healthy growth trajectory, and investors once again buy into the vendor.

This, above all else, will define Jakobs’ tenure at the top.

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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 ResearchTo view other recent Premium Insights that are part of the service please click here

Signify Premium Insight: The Impact of Inflation on Medical Imaging

This Insight is part of your subscription to Signify Premium Insights – Medical ImagingThis 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 ResearchTo view other recent Premium Insights that are part of the service please click here.

Medical imaging vendors are facing stern challenges. The lasting disruption caused by the Covid-19 pandemic, for instance, has meant that hospitals are dealing with enormous volumes of patients who saw their elective procedures and screening exams delayed. Logistical challenges such as disruption to supply chains and shortages of key components are hampering vendors’ ability to produce enough systems to satisfy demand, while pushing their production costs higher. Further, there are also shortages of key personnel at healthcare providers, with recruitment challenges that are particularly acute in some regions.

There is also one particularly pervasive challenge. After years of relative price stability, inflation is rising across the world, forcing vendors to make difficult decisions and making a true picture of their growth harder to discern. In the face of inflation, what can vendors do to best protect themselves, or even capitalise?

The Signify View

Despite the pervasiveness of the ongoing inflation, some groups and sectors are being hit harder than others. Fuel and energy prices are one of the key inflationary drivers, costs that are carried by almost all industries, with businesses and consumers alike being affected; other increases, however, are more industry specific. Fortunately for medical imaging vendors, for the most part, these increased costs and the disruption they bring have not fully translated into the medical imaging market.

Contracts in medical imaging are frequently agreed for extended periods and include fixed pricing. Such a model may make it harder for medical imaging vendors to take advantage of some sudden spike in demand, for example, but it at least cushions them from short-term instability. These contracts can’t isolate them indefinitely, and over time, as contracts come up for renewal, prices will rise. However, the staggered nature of renewals will help shield providers from dramatic increases at the same time, even if costs overall are rising.

This is just as well. Hospitals are facing pressures across the board. While the elevated numbers of deaths attributed to Covid have passed, the disease is still having a significant impact. There is pent-up demand for services as well as an enormous backlog of elective procedures. There is, in many specialisms, a distinct shortage of staff, while those staff that do remain are frequently overstretched and burnt out from the demands of the previous years’ tribulations. Increases in the cost of consumer goods will also leave vendors facing higher wage bills and likely higher turnover, as staff seek to offset reductions in their own spending power. These challenges will, in some markets, be exacerbated by emergency state healthcare spending linked to the Covid 19 pandemic running out as governments are forced to deal with their own economic challenges.

Spend or Save

Healthcare providers can deal with these challenges in one of two ways. One option is to simply cut back on spending, avoiding outlay wherever possible. The alternative approach, which, judging by providers’ response to Covid seems likely, is for providers to smartly invest in the right technologies. Providers could well be swayed into investing in new systems that improve efficiency, streamlining processes and improving operational workflow. This has occurred both for the IT side, but also on the modality side, with providers choosing to replace aging systems with updated equipment that allows higher patient throughput and is easier to use, a valuable quality at times of high staff turnover.

This willingness to invest will, however, only extend to proven products, with the strains put on providers making them more risk averse. Vendors promoting nascent technologies such as AI are likely to struggle to gain traction without robust cost-benefit and clinical outcome evidence, with providers not having the resource or will to expend on adopting products which remain economically untested. A factor which could restrain and shape such markets near-term.

Similarly, a provider’s choice of vendor is also likely to become more conservative. Some hospitals might be tempted by the lower costs of less-established Chinese vendors such as United Imaging or Mindray, but for most, the security and surety of service offered by the likes of GE HealthCare, Philips Healthcare and Siemens Healthineers, will outweigh a modest saving over the long-term. This is especially true given the advanced fleet management and workflow tools these long-established vendors also offer.

This more conservative approach will also prevail for vendors, with many emerging markets now looking far less attractive than those that are well established. While many have traditionally served as growth engines, the volatility in many of those markets now makes them look a far too risky proposition. In Argentina, for example, inflation is forecast to reach 90% by year’s end while in Turkey, that figure is above 60%. Such inflation rates cause countless headaches for any international business with prices becoming obsolete on an almost daily basis and their ability to forecast and plan significantly hampered. Dealing with such headaches, in return for markets that often contribute a modest amount of revenue to a vendor’s total income, will, for many, be deemed simply not worth the effort. Instead, international vendors will concentrate their efforts on established markets and reduce their exposure to such emerging market volatility.

Reasons for Growth

Even without such dramatic increases, rising inflation rates make truly assessing a business’ performance difficult, making it challenging to determine how much of a market’s growth is a result of wider economic factors.

One approach to this issue is a comparison of ‘typical’ historical average shipment prices for each imaging segment, figures that range from +2% to -6% depending on the imaging modality market, against a forecast that includes inflationary impact. Such a comparison will, given consistent unit shipment demand across scenarios, effectively isolate the impact of inflation.

There are some caveats to this analysis: The impact of Covid 19 already being “baked in” to both forecasts; a change in product mix resulting from the pandemic will bias the effect of inflation more in some segments and less in others; and 2022 and 2023 forecasts being projections based on expectation rather than 2021 being based on reported data.

However, even given these limitations this forecast comparison highlights that inflation effect and increases in supply chain costs are set to add around 3-6% to global imaging market revenue growth between 2021 and 2023. This effectively means that globally, some $3.9bn of the overall imaging market over that period is a result of inflation; an average of 1.6% additional year-on-year revenue “growth”.

Size Matters

Against such a backdrop, different types of vendors will fare differently. Smaller vendors, which are nimbler and can react more quickly to changes in the market compared to their larger kin, could assume they are in a strong position; however, apart from in some exceptional cases, this is a fallacy.

Large international vendors will still be able to rapidly adapt to changing market requirements. They could, for example, respond to tightened budgets by making refinements to products or focusing on development of certain tiers that are likely to be in high demand: value and workhorse offerings rather than the very top-end, for instance.

Beyond such direct product changes, the breadth of large international vendors also grants them more flexibility. Such flexibility can manifest in numerous ways, from adapting supply chains, to changing regional focus. More significant, however are these vendors’ ability to take a longer-term view. Large medical imaging vendors are increasingly looking to derive revenues from long-term, managed-service partnership deals. With the length of these deals growing, vendors can look to absorb the near-term inflationary pressures, offering cost-competitive deals for providers from which vendors will hope to derive significant returns further into the future. Given the certainty such deals offer, providers will also likely be keen to enter extended contracts, giving them some security amidst broader volatility.

There are limits to this flexibility, though, with vendors’ agendas set, inflation priced into deals and projections, and provider’s purchasing plans already made. As such for the next 12-24 months vendors won’t need to deviate from their current strategies. Longer-term however, from 2024 onwards, the level of uncertainty is much higher. If recession bites severely, governments could look to cut healthcare spending, the balance between private and public healthcare could shift as patients who can, look to go private. AI could become more pervasive in hospitals as a potential counter to limited staffing, but long-expected consolidation in that market could finally materialise.

Alternatively, the global economic outlook could improve, a resolution to Russia’s invasion of Ukraine could bring cheaper energy, and 2024 may herald a return to a focus on cutting-edge innovation for medical imaging. In whichever case, vendors need to hold their nerve over the coming years. Profitability may be hit, margins may slim and priorities may change, but inflation, like Covid before it, is another challenge that leading vendors can and must ride out.

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 ResearchTo view other recent Premium Insights that are part of the service please click here