The omens look good for a medtech-only Philips

Novartis might be having trouble with its medical technology division, but Philips’s is going from strength to strength. The Dutch group’s third-quarter HealthTech sales rose 5% to €4.2bn ($4.6bn), outstripping overall revenue growth of 2%.

This was held back by the poor performance of its lighting division, providing further backing for the company’s strategy of cutting this loose and reorganising as a pure-play healthcare company. This process ought to be complete by the end of this year. But the fourth quarter will be crucial, and the company must keep up the pace: first up for the reimagined Philips will be gaining expanded FDA approval of a new imaging system.

Digital watching

Success in a surgical pathology trial may help Philips expand its IntelliSite digital pathology system beyond the detection of HER2/neu in breast cancer and allow it to build its health-division sales. This system scans histology slides to produce high-resolution images and enable research analysis and information sharing.

This trial showed IntelliSite to be as accurate as optical microscopes, as demonstrated by discordance rates between diagnoses made with digital pathology or microscope. IntelliSite met non-inferiority benchmarks, permitting Philips to seek additional indications via a de novo submission.

The system is a more expensive way of diagnosing pathologies than optical microscopes. Its selling point is its networking, allowing images to be shared more easily between doctors for a second opinion, for instance, as well as use of precise tools for measurement and counting.

Lighting up for sale

Philips will need more clinical successes like this if it wants to grow its medical technologies business. But it can help itself in the meantime by getting rid of lighting, its remaining non-medtech division. The main lighting business was spun out in May, with 37.5 million shares – 25% of the business – being listed on the Amsterdam exchange. Philips intends to sell down its remaining stake over the next few years.

Philips's Q3 2016 sales
Businesses Sales (€m) Y-o-y growth
Personal health 1,663 7%
Diagnosis & treatment 1,635 6%
Connected care & health informatics 742 0%
Healthtech other 117 -6%
Lighting 1,741 -3%
Total 5,898 2%

It also plans to have another go at selling its separate California-based LED business, Lumileds, later this year. An attempt to shift this to a Chinese private equity fund for $3bn was terminated in January when US regulators blocked it on security grounds.

If it cannot tout the business to companies from China – and perhaps also those from other potentially worrisome countries – it might have to cut its asking price for Lumileds. Alternatively it could take the IPO road again, though management appears to have its heart set on a sale.

One can see why — $3bn or thereabouts would come in handy for a company looking for new assets to beef up its medtech sales.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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