Frans van Houten, CEO
Abhijit Bhattacharya, Exec. VP and CFO, Royal Philips
Sophie Bechu, Exec. VP and Chief of Operations, Royal Philips
Jean Botti, Exec. VP and Chief Innovation and Strategy Officer, Royal Philips
Andy Ho, Exec. VP, Greater China Market, Royal Philips
Ronald de Jong, Exec. VP, Global Markets, Royal Philips
Brent Shafer, Exec. VP, North American Market, Royal Philips
Rob Cascella, Exec. VP, Diagnostic & Treatment Businesses
Pieter Nota, Exec. VP, Personal Health Businesses
Jeroen Tas, Exec. VP, Chief Innovation and Strategy Officer, Royal Philips
NO. OF EMPLOYEES: 63,730 (113,678 total)
GLOBAL HEADQUARTERS: Eindhoven, The Netherlands
The naysayers are back.
They surround Jeroen Tas like an invading army, lobbing constant discouragement, constant cynicism his way. “It can’t be done,” the voices whisper in a strangely familiar chorus. “It will never happen.”
“Nobody is going to support that idea.”
“The world isn’t ready for this.”
And so on. And so forth.
Though it’s bothersome, Tas pays little attention to the encroaching squadron of doom—he’s fought on this battlefield before and won. And he fully intends to deliver an encore.
Tas, 58, first encountered the pessimists more than two decades ago while helping Citigroup develop online banking services.
“I was leading their innovation lab, and we were very proud because we were the first ones to launch internet banking,” Tas told a virtual audience last year during a Royal Philips N.V.-sponsored global conference on the future of healthcare. “We had this idea that if we do internet banking, it not only provides better service to our customers, it will actually give us much better insight into what our customers really need. Of course, I was excited about it but a lot of people told me, ‘These are all great ideas, but...nobody will ever do their banking on the internet.’”
Those same people are now advising Tas against digitizing healthcare.
“Strangely enough, this is the discussion I’m having today. I’m excited about what we can do for healthcare because it’s way more impactful than what we’ve ever done in finance, but I’m getting into the same discussions,” Philips’ chief innovation and strategy officer said at the conference. “It’s really important that we collect data about the patient so we can better help the patient. And we have to do it in the cloud because it’s a great place to bring data together and analyze data so we can share it. And people look at me and say, ‘No, no, no...we’re never going to put patient data in the cloud. There’s privacy and security issues...’ To that, I say it has such a huge impact on care. It can really help us create better outcomes.”
Indeed, data analytics are key to deciphering patterns and trends that can help healthcare providers and other stakeholders develop more thorough and insightful diagnoses and treatments, resulting in higher quality care at lower costs. For most segments of the health industry, however, big data is still just a big idea—an evolving concept that hasn’t quite reached the mainstream of clinical care.
Although the prospect of integrating disparate sources of information into a multifaceted canvas of patient experiences is a tantalizing one, patient privacy concerns, health information exchange availability, and a chronic lack of time, knowhow, and funding have all contributed to keeping big data on the back burner.
But there is much to gain by removing it from cold storage, according to Tas.
“I joined Citibank in the early 1990s. A couple of years later, the physical stock exchange started to disappear. Even in Amsterdam, there is no physical stock exchange—you can buy Philips shares, but there is no physical place in which to trade it,” he said. “Today, most of the trading is algorithmic. Why? Because advanced visualization is not sufficient. Advanced visualization doesn’t allow you to deal with the complexity of all the financial information simultaneously. I know the financial system is extremely complex, but each of us individually is a way more complex system than the entire financial system. This should give us some ideas about how we should think about healthcare.”
Philips’ thinking on healthcare has changed drastically in recent years as the industry experienced a paradigm shift toward consumerized devices and value-based delivery models.
Recognizing the opportunities presented by the growing convergence of enterprise IT, consumer electronics, and care delivery, the company shed most of its longstanding legacy businesses (audio visual, computers, semiconductors) to focus on data-enabled healthcare delivery. Last year, in celebration of its 125 anniversary, the Dutch conglomerate reinvented itself by spinning off its Lighting business and creating a HealthTech division targeting population health management and enterprise-wide solutions for health systems.
ANALYST INSIGHTS: It is obvious when you go to any care facilities that Philips has an amazing market share in diagnosis and monitoring. It has also, in recent years, become a pioneer of remote medical care and, pushing it even further, transferred to the home setting. Now add digital health to the portfolio and the patient will be in the driver seat—with the ability to connect through a personal device back to the healthcare provider or the hospital. As Philips is already very present in home technology, look for all of this to come full circle in a very unique connected way.
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
The new HealthTech division is divided into four business segments, with the largest being Diagnostics & Treatment. Comprising imaging, deep learning applications, and minimally invasive remedies, this segment is tasked with helping doctors arrive at definitive diagnoses.
The Connected Care & Health Informatics houses patient monitoring, image archiving, digital pathology, population health, and electronic ICU segments, while Personal Health constitutes health and wellness (oral care, pain relief), personal care (male grooming and beauty), domestic appliances (no medical-related items included), and sleep and respiratory care. The HealthTech “Other” category includes the vague areas of innovation, emerging businesses, IP royalties, and central costs (the latter category supports “the creation of value,” according to Philips’ 2016 annual report).
Ironically, there was almost no value creation in the HealthTech “Other” segment last year. In fact, the business was the sole deficit producer, losing 5 percent of sales from 2015 to settle at $478 million. The company blamed lower royalty income from license expirations for the decrease, but noted the drop-off was partially offset by new patent license agreements and strong double-digit growth in emerging businesses.
Personal Health and Connected Care & Health Informatics were the cash cows in 2016 (year ended Dec. 31), rising 5 percent each to reach 7.1 billion euros and 3.1 billion euros, respectively. Personal Health’s impressive momentum was fueled mainly by the rapid market traction of Philips’ Sleep & Respiratory Care products, particularly the Patient Adherence Management Service (PAMS) and DreamStation Go portable CPAP solution.
Building on the success of its integrated Dream Family solution in the United States, Europe, and Japan, the DreamStation Go solution is designed to simplify travel for patients suffering from obstructive sleep apnea. The device is half the size of previous generation products.
Launched in June 2016, PAMS is designed to support new patients transitioning into continuous positive airway pressure (CPAP) sleep therapy. PAMS marries the company’s EncoreAnywhere software, DreamStation PAP therapy devices, its portfolio of masks, and the DreamMapper patient engagement application with a new Patient Outreach Protocol to boost adherence rates up to 24 percent within the first 90 days. The program features personalized calls, emails, and texts intended to educate, motivate, and support sleep therapy patients, software for workflow and communications with home care providers to help identify struggling patients, and customized patient engagement apps.
Philips’ entire Sleep & Respiratory Care product line generated 1.5 billion euros for the company last year. The portfolio’s performance (as well as Personal Health, for that matter) appeared unaffected by Respironics Inc.’s $34.8 million settlement with the U.S. Justice Department over kickback charges related to its sleep apnea masks. Philips agreed to pay $34.1 million to Uncle Sam and $660,000 to state governments based on their Medicaid program participation.
Federal prosecutors accused Respironics of defrauding U.S. government health programs by providing free call center services to medical equipment suppliers that purchased its sleep apnea masks, in violation of the False Claims Act. The misconduct allegedly occurred from April 2012 to November 2015.
Philips, however, contended its Fit for Life program “offered a permissible bundled discount of Respironics masks and resupply services under the appropriate discount safe harbors,” according to Reuters. The company has since restructured its call center pricing.
Philips’ two other profitable business segments stayed out of trouble in 2016 by releasing a bevy of new products. The Connected Care & Health Informatics vertical was the most prolific producer, debuting PerformanceBridge, a new suite of operational performance improvement software and services for radiology departments; Illumeo Adaptive Intelligence and IntelliSpace Portal 9.0, advanced informatics and visual analysis solutions with machine-learning capabilities to support physicians; and a new version of its IntelliVue Guardian solution (in Europe).
The latest rendition of IntelliVue comprises smart devices including wearable biosensors, and clinical support software and services. The solution is designed to help clinicians recognize “patient deterioration” in hospitals and provide interventions that prevent adverse events, unplanned ICU transfers, and longer overall hospitalizations.
Augmenting its IntelliVue solution were Philips’ patient monitoring agreements with Rush University Medical Center in Chicago, Medical University of South Carolina, Heart Hospital (Tampere, Finland), and Emory Healthcare in Atlanta, Ga. The Emory agreement calls for Macquarie University’s MQ Health in Sydney, Australia, to provide continuous nighttime critical care oversight to the Atlanta institution’s ICU patients.
In addition to its new product bounty, the Connected Care & Health Informatics segment brokered several deals in 2016, the most important of which was the July acquisition of population health management software firm Wellcentive. The Atlanta, Ga.-based company offers data analytics services for health systems, physician groups, accountable care organizations, and health plans. By integrating those applications into its HealthSuite cloud, Philips significantly extends its footprint in the digital solutions/health informatics market.
“As consumers take a more active role in managing their health, we see professional healthcare and consumer health converging,” Philips CEO Frans van Houten said in his letter to shareholders within the company’s 2016 annual report. “This provides a tremendous opportunity for technology to play a role in data-enabled healthcare delivery, also supporting the shift from hospital care and acute reactive care to more proactive ambulatory and home care.”
Philips also expanded its connectivity capabilities through partnerships with Qualcomm Life Inc. and Masimo. The Qualcomm pairing allows the Netherlands-based multinational to connect its own medical devices as well as third-party products to its HealthSuite platform using Qualcomm’s 2net hub.
The alliance gives Qualcomm customers access to HealthSuite’s data normalization, aggregation, and analytics, thereby enabling them to build applications, integrate with electronic health records, store data, and manage consents and authorizations. HealthSuite users, on the other hand, can customize connected care programs and add medical devices with a profile that will expand over time.
Philips’ $300 million, multi-year coupling with Masimo ends patent disputes between the two companies, including a $466 million payment owed Masimo by Philips—the result of a 2014 verdict. Under their partnership agreement, the pair will combine their noninvasive biosensing/signal processing solutions and patient monitoring equipment, and also develop new digital monitoring technologies.
Philips’ partnerships last year helped drive growth in the company’s Healthcare Informatics and Solutions & Services product lines. Those gains, along with mid-single-digit hikes in Patient Care & Monitoring Solutions, helped boost Connected Care & Health Informatics revenue 5 percent to 3.16 billion euros. EBITA amounted to 322 million euros, or 10.2 percent of sales, a solid jump from the 227 million euros, or 7.5 percent of sales, reported in 2015.
Collaborations figured prominently in the Diagnostics & Treatment segment’s 2016 operations as well. In addition to signing multi-year agreements in China and Russia to improve cardiac care, the company forged a licensing accord with Danish pathology technology firm Visiopharm to offer its breast cancer algorithms through Philips’ digital pathology platform. Philips expects that applying advanced computer processing to a digital tumor image can help pathologists achieve more consistent readings and diagnoses.
The Visiopharm agreement was announced on the same June day that Philips disclosed its acquisition of PathXL, a Northern Ireland-based software developer of digital pathology image analysis solutions, workflow, and education.
Philips integrated the PathXL technology into its existing IntelliSite Pathology Solution, which creates, manages, and displays pathology images. It includes an advanced pathology slide scanner and accompanying software.
“The computer can do a much better job than the human eye, as it is much more systematic in analyzing tissue,” van Houten told The Irish News last summer, noting the deal will eventually help the company gain digital imaging analysis market share.
Lending a hand in that goal were a number of new diagnostic products last year, including the U.S. Food and Drug Administration 510(k)-cleared MRCAT (Magnetic Resonance for Calculating ATtenuation) on the Ingenia MR-RT platform. Offering a magnetic resonance (MR)-only alternative to conventional MR-CT tandem modality, the MRCAT uses a single mDIXON magnetic resonance imaging (MRI) sequence to generate the needed electron density information, plus the high-quality soft-tissue contrast for target delineation that MR offers.
The MRCAT solution allows radiation departments to use MRI as a single, standalone imaging modality for prostate cancer treatment planning.
Buoyed by new innovations like the MRCAT and Philips IQon Spectral CT, image-guided therapy and ultrasound equipment experienced strong sales in 2016, helping boost overall Diagnosis & Treatment revenue 3 percent to 6.68 billion euros. EMITA rose 8.9 percent to 594 million euros, while income from operations climbed 8.2 percent from 2015 to 546 million euros.
Overall HealthTech revenue rose 4 percent in 2016, though the increase is based on sales of non-health-related items like kitchen appliances, floor care items, coffee products, etc. Philips Group proceeds edged up 1.12 percent to 24.5 billion euros, while gross margin totaled 10.6 billion euros, or 43.3 percent of sales, compared with 9.85 billion euros, or 40.7 percent of 2015 sales.
“Our overall 2016 performance gives me great confidence for the future as we build upon outstanding positions in the hospital and the home, expand our solutions capability and continue to deliver on the promise of digitization and smart, connected care,” van Houten said in the annual report.