KEY EXECUTIVES:
Gerard Kleisterlee, President, CEO and Chairman
Pierre-Jean Sivignon, Exec. VP and CFO
Stephen H. Rusckowski, Exec. VP and CEO, Philips Healthcare
NO. OF EMPLOYEES: 35,550 (121,000)
GLOBAL HEADQUARTERS: Amsterdam, Netherlands
In every challenge, there is opportunity. And few things are more challenging than today’s healthcare environment. Rising healthcare costs worldwide present nations, companies and individuals with difficult choices—the balance between reducing costs and continuing to improve and provide high-quality care. The management of Philips Healthcare—a division of Royal Philips Electronics—sees the firm’s future in seizing the opportunity that exists in healthcare reform.
According to Philips’ leadership, the company’s “distinctive” approach to healthcare begins by looking beyond the technology to the people—patients and care providers—and the medical problems they face. “By gaining deep insights into how patients and clinicians experience healthcare, we are able to identify market and clinical needs,” according to the company’s annual report for fiscal 2008.
Philips Healthcare—which restructured and rebranded in 2007—is made up of multiple product sectors, including: Imaging Systems, Clinical Care Systems, Home Healthcare Solutions (which the company claims is the largest in the market), Healthcare Informatics and Patient Monitoring and Customer Services.
For fiscal year 2008 (ended Dec. 31), sales for the Andover, Mass.-based company increased 15 percent (in euros). Total sales were roughly $10.7 billion (7.6 billion euros). Much of the increase largely was the result of contributions from recently acquired companies, notably Murrysville, Pa.-based Respironics, a provider of respiratory and sleep therapy solutions for hospital and home use. (Though announced in fiscal 2007, Philips completed the purchase of Respironics in 2008 for $5.1 billion—Philips Electronics’ largest purchase to date.) Excluding the 14% positive impact of portfolio changes and the 5 percent unfavorable impact of currency effects, comparable sales grew 6 percent for FY08 compared to 2007.
Philips Healthcare reported that all businesses showed positive growth, led by solid sales growth in Customer Services, Clinical Care Systems, and Healthcare Informatics and Patient Monitoring. The company’s X-Ray and Nuclear Medicine product lines supported higher sales within Imaging Systems, though partly tempered by lower sales in Computed Tomography. Geographically, double-digit sales growth was achieved in key emerging markets such as China and Latin America, driven by growth in all businesses. Also, single-digit sales growth was achieved in more mature markets, across all businesses, notably Imaging Systems and Clinical Care Systems, company officials noted.
Earnings of 863 million euros (approximately $1.2 billion), or 11.3 percent of sales, marginally were unchanged from 2007 earnings of 862 million euros ($1.2 billion, using last year’s converted figures). Earnings included approximately $126 million in acquisition-related charges and $97 million of restructuring charges. Respironics’ performance, as well as higher earnings in the Clinical Care Systems, Healthcare Informatics and Patient Monitoring sectors bolstered income. Earnings were partly offset by lower earnings at Imaging Systems. Earnings also were helped by the sale of Philips speech recognition business.
In October 2008, Nuance Communications of Burlington, Mass., acquired Philips Speech Recognition Systems for $96.1 million to help position the company to expand its healthcare-related business in Europe. According to Nuance, $15 billion is spent on medical transcription in North America and Europe each year, but the businesses tend to operate quite differently. Bob Wise, president of Nuance’s healthcare division, said the firm had little presence in Europe, while Philips has a strong presence as well as good relationships with software vendors and original equipment manufacturers.
Also in 2008, Philips finalized the acquisition of Baltimore, Md.-based VISICU Inc. (for $430 million), a provider of remote critical care monitoring. The company also purchased Northern Ireland-based Tomcat Systems Ltd., a company that offers a software solution to collect and aggregate data relating to cardiac care. Terms of the deal were not disclosed. Using the Tomcat platform, Philips launched its Cardiovascular Information System in the fourth quarter of 2008. The system connects with different clinical information systems such as cath lab workflow management systems and picture archiving and communications systems.
Broadening its international reach has been part of Philips Healthcare’s business model for many years. Fiscal 2008 was no exception.
In 2008, Philips strengthened its presence in emerging markets by acquiring Brazil-based Dixtal Biomédica e Tecnologia, a manufacturer of in-hospital patient monitoring, anesthesia, ventilation equipment and electrocardiographs, as well as other sensors for vital-sign measurements; as well as Chinese patient monitoring company Shenzhen Goldway Inc., which provided Philips with a strong portfolio of economic and mid-range patient monitors. The company also made a few strategic purchases in India. A deal was announced in September to purchase India-based Alpha X-Ray Technologies, a manufacturer of cardiovascular X-ray systems. In November, Philips announced the acquisition of India-based Meditronics, a manufacturer of general X-ray systems for the economy segment in India.
“The acquisition of Meditronics, just two months after we announced the acquisition of Alpha, highlights our accelerating efforts to expand our healthcare business in emerging markets and India in particular,” said Philips CEO Gerard Kleisterlee. “This underlines our conscious decision to step up investments in these high-growth areas while also delivering on our commitment to supply affordable healthcare solutions in emerging markets."
Adding to its home health business, Philips acquired the aerosol therapy business of Medel SpA in Italy. In a related transaction, Philips also purchased a manufacturing facility in Guandong, China for nebulizer compressor systems and operations in Hong Kong. Medel is a privately held Italian distributor of nebulizer compressor systems and other home healthcare products. The acquired businesses have become part of the Respiratory Drug Delivery business unit within Philips Home Healthcare Solutions. Financial details of this agreement were not disclosed.
Philips Home Healthcare Solutions CEO Don Spence, who in November 2008 succeeded former chief executive John Miclot, said: “When Philips acquired Respironics, the company also had a leading respiratory drug delivery business. Building upon that strength and fulfilling on our ambition to expand our high-growth compressor nebulizer systems franchise, we decided to acquire the aerosol therapy business of Medel, which allows us to better serve the needs of our customers and their patients who suffer from asthma, chronic obstructive pulmonary disease, cystic fibrosis and other respiratory disorders.”
So far, for 2009, Philips Healthcare hasn’t been any less acquisitive. In May, the company acquired Toronto, Canada-based Traxtal Inc., a medical technology company in the field of minimally invasive instruments and software for image-guided intervention and therapy.
The company’s product line includes imaging systems, diagnostics and resuscitation devices such as external defibrillators, radiation, healthcare informatics and patient monitoring. The worldwide market for image-guided systems is expected to grow to $600 million by 2015, according to Philips.
Financial terms of the deal were not disclosed. Privately held Traxtal has approximately 45 employees.
The company has been in partnership with Philips to provide integrated soft tissue therapeutic and diagnostic navigation solutions since 2006. Traxtal’s navigation device functions much like a global positioning system for medical instruments, designed to make interventional radiology procedures more accurate while reducing contrast, radiation dose and interventional time. For example, Traxtal's navigation solution displays, during the procedure, an instrument’s position, orientation and trajectory on medical images such as ultrasound or CT.
“Image-guided procedures are one of the most important breakthroughs in the healthcare industry in decades. This acquisition allows Philips to significantly enhance its abilities in this rapidly emerging field, and will help us further realize our ambition to offer the best quality of care in the most efficient way possible,” said Steve Rusckowski, CEO of Philips’ Healthcare division.
Rusckowski added that the purchase “opens up great opportunities” for the company to expand its product line.
Since 2005, Philips has spent more than $13.3 billion on acquisitions to bolster its medical and lighting units.