General Electric Expects Hearty Profits from Healthcare Unit

Healthcare reform may not be such a health hazard for business after all. At least not for the General Electric Co., anyway.

The head of the conglomerate’s healthcare arm predicted revenue would grow at an annual rate of 5 to 10 percent over the long term, with operating profit rising about 10 percent per year. John Dineen, president and CEO of GE Healthcare, did not explain what he meant by “long term” but said healthcare spending in the United States has “snapped back.”

Dineen claimed he and other GE executives have noticed an increase in demand for medical equipment and services since Congress passed the healthcare reform law in March. During the debate over healthcare reform, spending plummeted, he added.
“The fact that the rules could change…coupled with an economic recession, really slowed down the U.S. market,” Dineen told investors and analysts at its “healthymagination investor update” event on Nov. 9.

While he is confident of GE Healthcare’s long-term growth prospects, Dineen also realizes such growth is based on the health of the global economy. Unstable markets both in the United States and overseas could undermine the company’s future business strategy. “We don’t know what’s going to happen with economies,” he cautioned.

Executives, however, believe the company’s overall growth strategy is sound, buoyed by robust markets in India, Latina America and—particularly—China, where GE Healthcare is a $1 billion global local company with 4,800 workers, 166 products, 1,100 research and development scientists and six manufacturing centers. In addition, the company can expect to benefit from the American Recovery & Reinvestment Act (passed by Congress in February 2009 to help spur economic activity and invest in long-term growth) and the industry’s gradual transition to an electronic medical records system, said Vishal Wanchoo, president and CEO of GE Healthcare IT.

According to slides Dineen and other executives prepared for the investor update, GE Healthcare also can expect its long-term growth to be positively impacted by a rebounding U.S. healthcare market, a steady stream of new product releases (more than 400 new drugs or devices currently are waiting in the wings for their debut) and expansion into promising new sectors such as cell therapy, which has a 10 percent compound annual growth rate and whose value could reach $2.5 billion by 2015.

Dineen hinted that the healthcare unit “could be more aggressive” on the merger and acquisition front next year. “We’re really looking at various technologies in the portfolios,” he noted, adding that the company envisions many opportunities in the molecular diagnostics industry.

GE Healthcare expects to generate $3.5 billion in revenue in emerging markets this year. Profit through the first nine months of 2010 jumped 15 percent to $1.74 billion; revenue rose 4 percent to $11.8 billion.

GE entered the healthcare market by manufacturing imaging devices (X-rays and computed tomography scan machines). Its current operations range from diagnostic test development to hospital consultation, and it competes with such major conglomerates as Siemens AG and Philips Electronics NV.

For the last three years, GE’s healthcare division has been part of the company’s Technology Infrastructure segment, with executives reporting to Vice Chairman John Rice. But on Jan. 1, Dineen and the heads of two other units will start reporting directly to GE Chief Executive Jeffrey R. Immelt as Rice moves to Hong Kong to assume leadership of the firm’s international operations.