General Electric Co.’s push into home healthcare threatens Royal Philips Electronics NV’s market leadership, as growth slows in the US imaging equipment businesses that sell to hospitals.
GE, the world’s largest maker of medical-imaging equipment, and Santa Clara, California-based Intel Corp said yesterday they will jointly spend $250 million over five years to develop home health-care products. Researcher Datamonitor Group predicts the market will more than double to $7.7 billion by 2012.
“GE is very strong in health care and has a lot of knowledge and technology in-house that they can leverage,” said Peter Olofsen, an analyst at Kepler Capital Markets in Amsterdam who has a “reduce” rating on Philips shares. “Philips will be facing the established names here as well.”
The home health-care market is forecast to outpace growth in the hospital business, making it a priority for Philips and GE. Aging populations will boost medical costs and force governments to move more care into homes. Sales to hospitals have been hurt since 2007 by the US Budget Deficit Reduction Act, which has reduced reimbursement for imaging procedures and demand for such systems.
GE Healthcare, also the world’s biggest provider of digital health-record systems, will sell and market the Intel Health Guide, which the US Food and Drug Administration approved last year. The machine collects vital signs and information, sends data to doctors and acts as a videoconferencing and e-mail link.
“This is going to be a big business for us,” GE Chief Executive Officer Jeffrey Immelt said in an interview yesterday. “What GE and Intel recognize, is that more of the care is going to take place in the home.”
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A comparison between Amsterdam-based Philips and the GE- Intel partnership isn’t an “apples-to-apples” comparison, Immelt said. “The fact is this is a widely fragmented industry. There’s hundreds of companies in this space.”
The partnership between Fairfield, Connecticut-based GE and Intel also plans to expand into fall prevention, medical compliance, sleep apnea, cardiovascular disease and personal wellness monitoring.
Immelt declined to predict the alliance’s market share and said home health care will “over time” become a “multibillion dollar business.”
The GE health-care unit, based outside London, provided $17.4 billion of the parent company’s $182.5 billion in sales last year. Philips’s Home Healthcare Solutions had about 1 billion euros in revenue in 2008, or 13 percent of the medical division’s total sales of 7.65 billion euros ($10.3 billion).
Philips Acquisition
GE’s partnership with Intel comes after Philips bought Respironics Inc. for 3.6 billion euros last year, making it the world’s largest provider of home health-care products. Respironics sells masks and ventilators for treating respiratory and sleep disorders.
Since 2006, Philips has spent about $6 billion buying companies with home health-care operations, including Respironics, Raytel Cardiac Services, Lifeline Systems Inc. and Health Watch Holdings Inc.
Joon Knapen, a Philips spokesman, declined to comment on GE’s move into home health care.
Philips aims to expand its Home Healthcare Solutions division, whose products include the Lifeline emergency response system, by at least 10 percent annually in the next five years, unit head Don Spence said in an interview March 17.
‘Wind in its Back’
“Home health care is a segment in which Philips still has the wind in its back,” Kepler’s Olofsen said. “The combination of high growth and above-average profitability makes it one of the pearls of health care.”
Philips said on March 4 that the financial crisis was affecting its medical business, which mostly sells systems to hospitals and competes with GE and Siemens AG. Philips said it saw “ongoing evidence” of financing constraints in its imaging business in North America. In the fourth quarter, medical equipment bookings fell 2 percent as North American imaging systems demand weakened.
The medical-equipment industry may suffer more from U.S. President Barack Obama’s plan to cut spending on medical scans. Medicare imaging costs more than doubled to $14.1 billion from 2000 to 2006, according to a June 13 congressional report.
GE and Siemens are lobbying Congress to fight further cuts proposed by the Obama administration, they said March 6.
‘Upswing or Downswing’
Sales at the Philips health-care unit missed a management target for 6 percent growth in 2007 as a result of the Budget Deficit Reduction Act. The effect of Obama’s plan still has to be assessed, Philips’s Knapen said.
“We’re very comfortable with our current portfolio in home health-care solutions,” Knapen said. “Regardless whether the world is in an economic upswing or downswing, growth in that business will continue to be fine for years to come.”
Philips is trying to “get away pretty much from primary care, which is going at a slower pace,” said Bill Martineau, an analyst at Cleveland, Ohio-based Freedonia Group.
Until now the home health-care market had been untapped by most of Philips’s rivals. Siemens’s health-care business is focused on selling medical equipment to hospitals and clinics.
Siemens is in talks to sell its 25 percent stake in Draeger Medical AG, its only presence in home health care, to joint- venture partner Draegerwerk AG & Co KGaA to focus on diagnostics and imaging, spokesman Wolfram Trost said March 20.
Aging Population
Immelt aims to spur growth at the medical unit as U.S. demand for equipment such as MRI machines falls. GE bought Amersham Plc for $10 billion in 2004, its biggest acquisition, to enter the drug discovery and imaging chemical businesses.
GE already sells QuietCare, a device with wireless sensors that learns daily routines of patients and software that analyzes activities to detect early signs of illnesses.
By 2050, 16.2 percent of the global population will be 65 or older, compared with 7.3 percent in 2005, according to the United Nations Department of Economic and Social Affairs.
“In an aging world with an increase in the number of chronically ill, it’s impossible to put all those people in hospital and nursing-home beds,” Philips CEO Gerard Kleisterlee said March 27 at the company’s annual shareholder meeting. “The home will have to play a role.”
Philips shares dropped as much as 2.1 percent to 12.18 euros and traded at 12.265 euros as of 10:29 a.m., while Amsterdam’s benchmark AEX Index was down 0.1 percent at 231.93. GE closed 5.6 percent higher yesterday at $10.74 in New York.
To contact the reporters on this story: Marcel van de Hoef in Amsterdam at mvandehoef@bloomberg.net; Rachel Layne in Boston at rlayne@bloomberg.net.