Rank: #5 (Last year: #4)
$16.09 Billion ($20.7B total)
Prior Fiscal: $16.30 Billion
Percentage Change: -1.2%
No. of Employees: 77,400 (total)
Global Headquarters: Amsterdam, The Netherlands
Frans van Houten, CEO and Chairman of the Board
Abhijit Bhattacharya, Exec. VP, CFO
Sophie Bechu, Exec. VP, Chief of Operations
Jeroen Tas, Exec. VP, Chief Innovation and Strategy Officer
Marnix van Ginneken, Exec. VP, Chief Legal Officer
Ronald de Jong, Exec. VP, Chief Human Resources Officer and Philips Foundation Chairman
Vitor Rocha, Exec. VP, Market Leader of Philips North America
Andy Ho, Exec. VP, Market Leader of Philips Greater China
Henk Siebren de Jong, Exec. VP, Chief of International Markets
Rob Cascella, Exec. VP, Chief Business Leader of Diagnostics & Treatment
Roy Jakobs, Exec. VP, Chief Business Leader of Personal Health
Carla Kriwet, Exec. VP, Chief Business Leader of Connected Care & Health Informatics
There’s nothing particularly remarkable about the MRI machine inside the University of Lubeck’s Gross Gronau Radiology Clinic. With its long, cylindrical tube, large circular magnet, and mobile exam table, the unit looks like any other system currently in use.
And for the most part, it is like any other system—namely, older systems. The Clinic’s machine actually is a refurbished model from Royal Philips N.V. that uses a recycled 3000-kilo magnet to significantly cut energy consumption (by half compared to similar systems).
“Philips was able to offer an attractive alternative,” Dr. Claudia Bergmann-Koster, a Clinic radiologist, said in promotional material on Philips’ website. “We were able to get a state-of-the-art [MRI] machine with premium performance at a price that did not exceed our budget.”
Philips has been providing repurposed imaging systems to health institutions for three decades now in an attempt to adopt a circular economic business model—i.e., a system that is restorative or regenerative by intention and design. Transitioning to such a strategy is estimated to be worth more than $1 trillion in material savings, according to the World Economic Forum (WEF).
Philips refurbishes most of its capital equipment (magnetic resonance, interventional X-ray, computed tomography, surgical, PET/CT machines, SPECT scanners) at three locations around the world and sells them to customers at discounted prices. Over the last decade, the company has returned roughly 7,000 tons of refurbished medical imaging equipment to the market—an impressive amount, certainly, but a proverbial drop in the bucket considering the 180 billion tons of natural resources needed every year by manufacturers worldwide over the next three decades. Philips, however, intends to up the ante significantly by ditching the traditional consumption-oriented business model for a circular economy.
The company moved forward on that strategic swap last year by pledging to accept and repurpose all large medical systems its customers are willing to trade in. Speaking at the 2018 WEF annual meeting in Davos, Switzerland, Philips CEO Frans van Houten touted the financial benefits of improving the world through sustainable initiatives: “We firmly expect the circular economy to replace the traditional ‘take-make-dispose’ scheme,” he noted. “So at Philips we aim to take back all capital equipment from our hospital clients. What’s more, we expect this to become a win-win business model, because there is much residual value to recover. We continuously endeavor to ‘disrupt ourselves’ by rethinking and redesigning the way we do business to contribute to a better world.”
Philips’ share in the OEM refurbished equipment market hovers around 25 percent, but that figure is likely to rise as the multinational conglomerate implements more circular economy-befitting initiatives. As part of its “Healthy People, Sustainable planet” strategy, Philips aims to deliver 15 percent of its total revenue from circular solutions by 2020. The company is well on its way to achieving that goal, as revenues from circular propositions rose to 12 percent last year from 11 percent in 2017.
“With health systems the world over increasingly keen to reduce their environmental footprint, we remain convinced that sustainability can be a key competitive differentiator,” van Houten wrote in his message within the company’s 2018 annual report.
Philips may have no choice, since its non-sustainable offerings provided limited value proposition last year. Although the company boasted a 1.9 percent sales jump to 18.12 billion euros, it sustained revenue shortfalls in two of its three business divisions that contributed to a 1.3 percent drop in healthcare-related proceeds (14.07 billion euros).
ANALYST INSIGHTS: Having shed many of its other businesses, Philips continues to evolve as a company heavily focused on its Healthcare business for future success. Philips is making significant investments in image-guided platforms to defend and grow its market positions across many segments. In its Respiratory segment, it is facing tremendous competition from ResMed, so it will be interesting to observe how Philips responds to that challenge for its future.
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
Philips’ only profit-making business in 2018 was its Diagnosis & Treatment segment. Revenue swelled 5.1 percent to 7.24 billion euros, driven by double-digit sales growth in image-guided therapy and ultrasound products, and low-single-digit gains in diagnostic imaging equipment proceeds.
Connected Care & Health Informatics, on the other hand, was sidelined by flat sales in Therapeutic Care and Monitoring & Analytics. The former segment was hobbled by a U.S. Justice Department consent decree that erased $24 million from the company’s Q1 2018 earnings. Philips brokered the decree in October 2017 to resolve allegations it sold compromised automatic external defibrillators and Q-CPR Meters in violation of current good manufacturing practice requirements; specifically, federal regulators found the company’s corrective and preventive action procedures, design verification and validation controls, and product specifications at two facilities in Massachusetts and Washington to be “subpar.” The company, accordingly, was forced to suspend operations at those sites while it corrected the issues.
Not surprisingly, the closures stymied Therapeutic Care product revenue last year and helped foster a 2.5 percent drop in FY18 Connected Care & Health Informatics sales (3.08 billion euros, down from 3.16 billion euros in 2017).
Personal Health didn’t fare much better. Sales sunk 1.1 percent to 7.22 billion euros despite gains in Sleep & Respiratory Care, Personal Care, and Domestic Appliances (of which the latter two are non-medical device units). Health & Wellness proceeds remained flat in 2018.
“Our performance at segment level shows we still have scope for further improvement,” van Houten wrote in the annual report. “Our Diagnosis & Treatment business had a very good year in terms of sales growth, order intake, and improved earnings. At Connected Care & Health Informatics, topline growth was flat and we continued to make substantial investments in R&D, but the expanding order book gives us confidence we are on the right path to boost growth. Personal Health had a slower year, in part due to internal execution challenges, but we have taken decisive action. We are confident about the road ahead, given the array of new products and services we are bringing onto the market.”
That array included new magnetic resonance systems, ultrasound devices, dental care solutions, and sleep-related offerings. First to debut was FocusPoint, a network application management system to help improve biomedical and IT department productivity. The technology provides operational alerts and statistical data for health ecosystem support, allowing providers to increase system uptime and reduce costs associated with maintaining and servicing Philips medical devices, applications, and networks.
Next up were the successive springtime premieres of a “tele-ultrasound” solution and a full face CPAP mask. The tele-ultrasound offering, developed in conjunction with Montreal-based Innovative Imaging Technologies (ITT), allows clinicians to conduct two-way audio-video calls while streaming live ultrasound imaging. The technology is built on Philips’ U.S. Food and Drug Administration (FDA)-cleared portable ultrasound system (Lumify) and ITT’s multi-disciplinary healthcare collaboration platform (Reacts). React sessions begin with face-to-face conversations on smart devices, and provide users with various communication options: Users can speak to a remote clinician directly via the face camera, show the ultrasound probe’s position through the front-facing camera, or live stream an ultrasound for simultaneous view.
Operable in both Wi-Fi and cellular settings, the tool is touted by Philips as a potential resource for teaching institutions, emergency medical service providers, disaster relief providers, and satellite clinic support.
Launching just 24 hours after the tele-ultrasound solution, Philips’ DreamWear Full face CPAP mask is designed to provide a better option for mouth-breathing sleep apnea patients. It is the third mask option available to DreamWear fans, and was built with a thorough understanding of facial geometries to improve fit, comfort, and seal, according to the company. The mask directs airflow through the frame and removes the front face hose, allowing patients to sleep more comfortably in any position.
Summer produced an ample harvest of new products, beginning with the July 2018 release of the Philips Sonicare ProtectiveClean power toothbrush, which detects and alerts users to excessive (brushing) force. In late August, the company unveiled its Sonicare Solutions Teledentistry Service, a solution that provides consumers with remote dental consultation from licensed dentists within 24 hours. The Philips Sonicare app acts as a “virtual hub” for personal oral healthcare, enabling users to manager their daily oral care and share brushing data with their dentists.
Also debuting in late August last year was the EPIQ CVx/EPIQ CVxi ultrasound systems and the Ingenia Elition 3.0T magnetic resonance solution. The EPIQ CVx product line incorporates Philips’ AIUS (Anatomically Intelligent Ultrasound) technology, an innovation that enables clinicians to quantify the heart’s left ventricle. The company introduced AIUS several years ago and has since expanded its capabilities to include additional 3D measurements, including left ventricular mass. Other disease-specific features of this technology include a mode for evaluating coronaries.
The EPIQ CVx products are designed for both the office (CVx) and cath labs (CVxi). The latter model integrates with Philips’ EchoNavigator, thereby allowing interventional cardiologists to view fusions of live 3D transesophageal echocardiography and X-ray images.
Released on the same late August day as the EPIQ CVx portfolio, the patient-friendly Ingenia Elition 3.0 T MR solution is designed to expedite magnetic resonance imaging exams (up to 50 percent faster) without sacrificing image quality. The machine’s VitalScreen offers operators fully-guided patient setup with a newly-developed user interface for workflow optimization; its VitalEye technology features a patient sensing approach that enables a respiratory signal without any interaction from the operator. The Ingenia’s VitalEye technology and algorithms process more than 200 body locations in parallel to intelligently extract signs of breathing, allowing clinicians to cut routine exam setup time to less than a minute. Additionally, SmartExam analytics enable automatic planning, scanning, and processing of exams that help improve the entire MR workflow, from image acquisition to reading preference.
Philips further enhanced its Ingenia lineup in September last year with the introduction of the Ambition X 1.5T MR system, a machine featuring a fully-sealed magnet that contains less than 0.5 percent of helium compared to conventional systems. The Ambition X does not require a vent pipe and is roughly 900 kg lighter than its predecessor—factors that significantly can reduce siting challenges presented by conventional magnets and lower construction costs, the company claims.
“BlueSeal is breakthrough MRI technology and we’re proud to be first to market. The fully-sealed magnet dramatically reduces the amount of liquid helium needed to cool the magnet to less than half a percent of the current norm,” Arjen Radder, Philips’ global business leader for MR, said when the Ambition X debuted. “This results in significant operational benefits for our customers, including a smaller, lighter, and more flexible installation footprint and a more efficient return to normal operations if an interruption in service should ever occur.”
Philips concluded its 2018 product launch parade near Halloween, releasing an FDA-cleared and CE mark approved mobile app and “all-in-one breast ultrasound” solution. The mobile app—dubbed IntelliVue Guardian Software—provides clinicians with patient condition updates, and integrates with other Philips-developed wearables and smartphone technologies like Early Warning Scoring, which predicts when patient deterioration may occur and then intervenes. The company considers the IntelliVue Guardian Software as an alternative to writing down patient information on a central white board.
The all-encompassing breast ultrasound solution for Philips’ EPIQ and Affiniti systems contain anatomical intelligence software and an eL 18-4 transducer. The solution combines four features that work seamlessly together for comprehensive screening and disease diagnosis, including:
The PureWave eL 18-4 ultra-broadband linear array transducer for high-quality imaging (helpful in screening patients who may be more technically challenging to image). PureWave crystal technology, which delivers fine-elevation focusing for improved detail resolution and tissue uniformity as well as extended depth-of-field performance.
Anatomical intelligence for breast software, which enhances reproducibility and streamlines workflow while preserving image quality during the breast exam. The software provides visual mapping and annotation of screened anatomy with minimal user interation.
ElastQ Imaging shear wave and strain elastography for the rapid assessment of various breast lesions. In combining both wave methods, ElastQ Imaging reveals more definitive information on tissue stiffness in the breast.
New precision biopsy, allowing for more targeted biopsies, thorough educed blind zones, and enhanced needle reflections during interventional procedures.
Product launches, however, were not the sole source of Philips’ portfolio enrichment efforts last year. The company also boosted its offerings through acquisition, purchasing a positional sleep apnea firm, heart rhythm disorder specialist, and prehospital acute care provider within a five-week span last spring.
Philips expanded its sleep/respiratory care lineup with the May 2018 deal for NightBalance, a Netherlands-based digital scale-up firm that developed a treatment for positional obstructive sleep apnea and positional snoring. The company’s CE-marked Sleep Position Trainer gently prompts patients to not sleep on their backs, enabling them to avoid dangerous apneas.
Similarly, Philips bolstered its interventional imaging systems, smart catheters, planning and navigation software, and services portfolio with the early June purchase of EPD Solutions, a specialist in image-guided procedures for cardiac arrhythmias. EPD Solutions makes cardiac imaging and navigation systems that help electrophysiologists navigate the heart through a detailed 3D image of the cardiac anatomy.
With the ink barely dry on the $293 million EPD acquisition, Philips purchased Remote Diagnostic Technologies (RDT) in mid-June 2018 in an effort to expand its position in the resuscitation and emergency care market. Founded in 1997, RDT focuses on prehospital acute care, including primary patient stabilization, on-scene medical treatment, and hospital transportation.
The deal enhanced Philips’ therapeutic care portfolio with products designed for ambulance and emergency responders such as the Tempus ALS, a modularized monitor and defibrillator that is a smaller, lighter, and more flexible package. RDT also developed and sold other lightweight monitors equipped with telecommunication capabilities for various emergency responders.