Rank: #8 (Last year: #6)
€18.02 Billion ($18.77 Billion)
Prior Fiscal: €18.16 Billion
Percentage Change: -0.81%
R&D Expenditure: €2.09B
Best FY24 Quarter: Q4 €5.0B
Latest Quarter: Q1 €4.1B
No. of Employees: 67,823
Global Headquarters: Amsterdam, The Netherlands

It’s the beginning of the end.

After three long years (filled with countless sleepless nights, no doubt), Royal Philips N.V. is finally waking up from its costly, reputation-damaging recall nightmare.

And it appears the company is on the right path to redemption: Last January, Philips halted new sleep and respiratory device sales in the United States as part of a consent decree with the U.S. Justice Department and U.S. Food and Drug Administration (FDA). Finalized in April, the agreement specifically requires Philips to repair, refund, or replace the recalled products and retain independent experts to review the remediation plan.

The consent decree is mainly focused on Philips’ Pennsylvania-based Respironics business—manufacturing facilities in Murrysville and New Kensington, a service center in Mount Pleasant, and the Pittsburgh-area headquarters. Those facilities must be monitored by three different quality systems experts and inspected by an auditor for five years. The FDA can extend the auditing period for up to two years if problems are reported at any of the locations.

Although Philips cannot sell new BiPAP or CPAP machines in the United States until it proves compliance, the company can service devices currently in use while continuing to market products deemed “medically necessary” by the FDA (i.e., DreamStation 2, Dorma 100, Trilogy and V60 ventilators, among others). However, a portion of all revenue from those sales must go to the U.S. Treasury, with the government’s share reaching 25% by next year. The payments reportedly aim to keep Philips from becoming “too comfortable” selling products, attorneys posited at the time.

While rare, the payments are not an unusual penance for non-compliant companies that sell market-essential products. Nevertheless, the overall consent decree is uncommon for its uncustomary provisions and actions—namely, the extraordinary step of requiring Philips to repair, replace, or refund the purchase price of recalled devices.

“When you look back at how many consent decrees FDA enters into and what the scope of them are,” McDermott Will & Emery law firm partner Jamie Ravitz told MedTech Dive, “this would be on the more stringent side than I’ve seen in a while.”

Such stringency is hardly surprising, given the scope of Philips’ recall: 15 million products impacted; 116,000 medical device reports; 561 deaths; an alleged cover-up; and 700-plus lawsuits.

In that regard, the FDA’s strict demands appear justified. However, Philips has taken additional steps beyond the decree to ensure product quality and patient safety. Not only has the Dutch healthcare conglomerate remediated more than 99% of affected sleep therapy devices, it created a new C-suite role—chief patient safety and quality officer—that reports directly to CEO Roy Jakobs. “His role is as much of a practical thing as it is a message to everybody in the company,” Jakobs said of Steve C. de Baca during an interview with Fortune last fall.

de Baca’s 2023 appointment isn’t the only message Jakobs sent to his workforce about prioritizing patient safety. Both he and the executive team have been striving to change Philips’ corporate culture to facilitate a more open approach to product issues. The company holds regular forums between staff and top management to review processes and product performance, and allots time for employees to step away from their duties and ponder the ways their daily activities affect patient safety.

In addition, Philips strengthened responsibility and accountability for patient safety and quality by elevating oversight of that work to the company’s Executive Committee. There also are more effective early warning systems in place now in each of Philips’ business units.

“It had to be crystal clear from the moment I took charge,” Jakobs told Fortune, “that for me, safety was the number one priority.”

Another high-ranking priority likely was remorse—last spring, Philips paid $1.1 billion (including $25 million for medical monitoring) to settle more than 700 lawsuits from patients allegedly injured by the breakdown of sound-reducing foam inside the recalled devices. The settlement follows a $540 million compensation payment Philips made to customers in 2024.

ANALYST INSIGHT: “Stating the obvious, Philips is still rebuilding and rebounding after its respiratory device recalls in the past few years. It does appear they are finally turning the corner on growth through their focus on Image-Guided Therapy and Informatics. They likely will need M&A to further their growth re-set. Let’s see where that comes from.”

—Dave Sheppard, co-founder and managing director, MedWorld Advisors

In announcing the $1.1 billion resolution, Philips and Philips Respironics did not admit “any fault or liability or any injuries caused by Respironics devices.” The settlement, however, surprised many financial analysts, who had expected the payout to range from $2 billion to (worst-case) $10 billion.

Final tally aside, the settlement could more than prove its worth by setting Philips on the path to prosperity. “1.1 billion is a significant amount, however you put it,” Jakobs told reporters in April 2024. “This is important to end uncertainty and to provide clarity on our way forward.”

Philips has begun finding its way forward through strong partnerships and advances in artificial intelligence (AI)-enabled innovation. Last year, the company aligned itself with more than 18 hospitals and health systems worldwide to standardize and improve patient monitoring. Its 10-year collaboration with Bon Secours Mercy Health, for example, provides the U.S.-based Catholic health system’s 49 hospitals with Philips’ latest monitoring solutions, including a scalable platform that integrates patient data and standardizes patient monitoring.

The company also signed multi-year patient monitoring partnerships with several university hospitals in The Netherlands during 2024, and agreed to provide patient monitors for the new Grand Hôpital de Charleroi in Belgium, In addition, Philips began rolling out its ePatch and AI-driven analytics platform across 14 hospitals in Spain.

The wearable ePatch is used with Philips’ AI-driven Cardiologs analytics platform to monitor heart arrhythmias such as atrial fibrillation. It provides reliable data for up to two weeks of continuous monitoring, and has been proven to detect heart arrhythmias missed by traditional Holter monitors.

Clinicians in Spain and other parts of Europe acquired an additional patient monitoring tool last April through Philips’ strategic partnership with smartQare, developer of a multi-sensor solution for 24/7 remote patient monitoring (RPM). Under the partnership agreement, smartQare acquired Philips’ Healthdot business, combining the wearable biosensor with smartQare’s patient monitoring solution (viQtor) through a single digital platform. The two companies are jointly offering an integrated RPM solution to both providers and patients.

Healthcare professionals in Europe were among those in more than 200 countries worldwide who gained access to an IntelliVue patient monitor software update, courtesy of an FDA 510(k) clearance in early 2024.

Philips solicited input from patients and care providers in alarm-heavy environments to develop the IntelliVue software update. The company worked with the sound design group SenSound to soften and round alarm tones and adjust alarm intervals to more gently signal status or request action using a more soothing yet impactful set of alarm sounds. The changes are designed to help improve the patient and caregiver experience by reducing alarm noise by up to 66%.

“While alarms in acute care settings must be effective, they should be sensible, informative, and respectful of the surrounding environment and the people in it,” Christoph Pedain, business leader, Hospital Patient Monitoring at Philips, said in a news release about the software update clearance. “Throughout the process, we asked for input from care providers, administrators, patients and their families who are exposed to these alarms regularly and leveraged powerful data to help improve the experience overall.”

While it may contribute to a better patient experience, neither the IntelliVue software update nor Philips’ various monitoring-related partnerships boosted the company’s overall monitoring business last year. In fact, the unit operated at a loss, recording a low single-digit decline—a particularly disappointing outcome following the double-digit growth seen the previous year.

A better performance came from the Enterprise Informatics business, which partially offset Monitoring’s loss with mid-single-digit gains. The unit bolstered its present and future earnings prospects by extending its partnership with Amazon Web Services (AWS) twice last year: once in March to scale digitized pathology slides in the cloud, and again in late November to offer Philips’ integrated diagnostics portfolio in the cloud. The company already migrates 150 sites across North and Latin America to AWS, and the (second) expanded agreement will also support customer cloud migrations in Europe.

Philips’ integrated diagnostics portfolio includes radiology, digital pathology, cardiology, and AI visualization solutions. Under its expanded AWS partnership, Philips will create generative AI applications using Amazon Bedrock foundation models and integrate those solutions into clinical workflows to reduce administrative burdens and time-consuming repetitive tasks. Case in point: Generative AI-developed conversational reporting enables clinicians to use conversational language to convert findings into structured and reviewable reports. AI helps construct and revise reports in real-time, add diagnostic impressions, and flag potential inconsistencies. Ultimately, optimized reporting could help produce quicker diagnoses and improve patient care.

FROM THE TOP: “In 2024, we made solid progress on our 2023-2025 operating plan. We believe we are on the right path, executing our focused strategy to improve people’s health and well-being through meaningful innovation, with patient safety and quality as our number one priority.”

—Roy Jakobs, CEO

“Given the tremendous increase not only in patient volumes but also in the complexity and number of images per study, radiologists need a tool that limits the distractions of dictation while at the same time increasing accuracy,” Edward Steiner, chief/medical director of The York/WellSpan Advanced Prostate Care Center (York, Pa.), said when Philips and AWS announced their extended partnership. “With Philips’ concept of ambient reporting using generative AI, you simply could speak in a conversational tone and a structured report is generated within seconds. My estimate is a 15 to 20 percent increase in efficiency, and this is just the start.”

That kind of start could bode well for Philips’ future earnings as the company integrates AI into more of its offerings. The bulk of those neural network novelties are concentrated in the Diagnosis & Treatment and Connected Care segments, but neither unit could parlay its respective deep learning technologies into profits last year.

China was the sales spoilsport, with double-digit declines undercutting revenue in all three of Philips’ business segments. Overall company revenue was down as well, slipping 0.81% (€148 million) to €18.02 billion. Gross margin rose 4.3% to €7.7 billion and income from operations improved to €529 million, due to a higher gross margin and lower Respironics-related items, partially offset by higher impairment charges.

China’s poor performance was most potent for Philips’ Personal Health segment, where proceeds fell 3.2% to €3.48 billion.

Connected Care sales were flat, falling just €4 million from the previous year to end fiscal 2024 at €5.13 billion. Similarly, Diagnosis & Treatment revenue sank just €35 million (0.39%) to €8.79 billion, with mid-single-digit growth in Image-Guided Therapy proceeds partly offset by a decline in Precision Diagnosis sales.

“Our results were negatively impacted in 2024 by deteriorated demand in China due to subdued consumer confidence, leading to more cautious spending behavior,” Jakobs told shareholders in a letter at the start of Philips’ 2024 annual report. “In addition, ongoing industry-wide anti-corruption initiatives have contributed to extended hospital procurement cycles. Despite global uncertainties and slower growth, we delivered strong profitability improvement and cash flow, and further strengthened our balance sheet. And, some of our largest investors further expanded their investment in Philips, showing confidence in our future.”

That confidence likely was bolstered by the multitude of AI-driven innovations introduced last year across the company’s Diagnosis & Treatment portfolio:

• The pill-shaped X11-4t transoesophageal echocardiography (TEE) ultrasound transducer aims to open 3D TEE imaging to a wider patient population. Roughly 35% smaller than previous models, the new FDA-cleared transducer is compatible with Philips’ cardiology ultrasound portfolio, including the EPIQ CVx and EchoNavigator image-guided therapy solution.
• The new Azurion neuro biplane image-guided therapy system uses the latest Neuro Suite software and services to provide neuro interventionists with a fully integrated solution that combines Philips’ ClarityIQ low-dose imaging with various neuro dedicated tools and value-added services. Features include enhanced C-arm rotation, angulation (imaging angles), and parking facilities that allow rapid transitioning between 2D to 3D imaging, comprehensive table-side control that eliminates the need to leave the sterile field, automatic beam rotation to obtain correctly-oriented images, and a new head immobilizer to support enhanced stroke care.
• Philips Image Guided Therapy Mobile C-arm System 9000 – Zenition 90 Motorized has expanded capabilities to meet complex vascular needs and various clinical procedures such as cardiac interventions, pain management, and urology. It features intuitive motorization for greater control and high-power (25 kW) for state-of-the-art image quality.
• The CT 5300 with Precise Image reconstruction software reduces reading time and delivers high-quality images at an 80% lower radiation dose. Precise Image achieves up to 85% lower noise and 60% better low-contrast detectability than conventional image reconstruction. The company collaborates with Annalise.ai to evaluate streamlining workflows to prioritize time-sensitive cases.
• Smart Quant Neuro 3D combines Philips’ AI based SmartSpeed image-reconstruction technology, Philips 3D SyntAc clinical application, and Synthetic MR’s SyMRI NEURO 3D quantitative tissue assessment software for improved diagnostic confidence. Philips’ exclusive agreement with SyntheticMR makes it the only company currently able to offer SyMRI NEURO 3D capability on MR scanners.
• The real-time 3D intracardiac echocardiography (ICE) catheter—VeriSight Pro—aims to give physicians more confidence and control during numerous minimally invasive procedures in structural heart disease and electrophysiology.
• Powered with Smart Workflow, the AI-enabled productivity features of DXR 7300 C reduce X-ray retakes with the Eleva Tube Head and enhance confident diagnosis with Philips UNIQUE 2 image processing.
• The Duo Venous Stent System comprises two stents—Duo Hybrid and Duo Extend—of various sizes. Duo Hybrid has a distinct integrated design that combines multiple zones of differing mechanical properties into a single stent. For long lesions, Duo Extend smoothly overlaps with the Duo Hybrid to extend therapy. The two stents work together and minimize the risk of stent fracture and corrosion, while providing an option to stent within caudal veins with smaller diameters.
• A new Cardiac Workstation uses advanced algorithms to access, analyze, and manage electrocardiograph (ECG) data either remotely or at the point of care. It also improves diagnostic cardiology by streamlining data collection and reducing administrative workload.
• The FDA-approved LumiGuide Navigation Wire uses fiber optic technology to reduce radiation for both patients and physicians during minimally invasive surgery. Employing Philips’ FORS solution, complex cases such as aortic repair procedures can be completed 37% faster and with 70% less X-ray imaging.
• Spectral CT 7500 RT combines true conventional and spectral CT capabilities in a single scan, seamlessly integrating into existing clinical workflows. As the first radiation therapy CT scanner to offer respiratory-gated spectral imaging, Spectral CT 7500 RT automatically creates the SPR map and direct electron density results with less than 1% deviation to enhance both the dose calculation and accuracy of radiotherapy planning.
• The next-generation 1.5T BlueSeal MR wide-bore scanner features a 70 cm-wide bore design and integrates AI-enabled MR Smart Workflow solutions, designed to enhance access and diagnostic confidence to improve patient outcomes. The MR Smart Workflow solutions increase daily patient throughput without compromising diagnostic quality to address the needs of high-demand healthcare environments.

€18.17 Billion ($20.05 Billion)
Prior Fiscal: €17.83 Billion
Percentage Change: +5.3%
R&D Expenditure: €1.89B
Best FY23 Quarter: Q4 €5.06B
Latest Quarter: Q1 €4.17B
No. of Employees: 69,656

Philips continued to lose sleep in 2023 over its ongoing remediation of the Respironics recall that began in June 2021.

In February 2023, reworked Respironics Trilogy 100, Trilogy 200, and Garbin Plus ventilators were subject to a Class I recall because the silicone sound abatement foam installed to replace the offending PE-PUR foam could separate from the plastic backing due to an adhesive failure. The company also observed residual PE-PUR foam in some reworked ventilators that were returned to customers. Fortunately, reworked or replaced BiPAP and CPAP machines weren’t affected by this recall.

April saw another Class I recall, this time for some reworked DreamStations due to some devices being assigned incorrect or duplicate serial numbers during initial programming. The duplication can cause failure to deliver therapy using the incorrect prescription or factory default settings. In fact, it may fail to deliver any therapy at all and there’s no warning or indication to the user the DreamStation isn’t working the way the doctor intended or prescribed.

Philips issued an update concerning risk assessments for 95% of the recalled first-generation DreamStation, System One, and DreamStation Go devices a month later. The company said results of its testing indicated exposure to volatile organic compound (VOC) emissions is “unlikely to result in an appreciable harm to health in patients.” The company also reported that results indicate exposure to particulate matter emissions from degraded foam in the devices—including possible respirable and non-respirable particulates—isn’t likely to result in appreciable harm to health.

Prevalence of visible degradation of foam for inspected, used, first-gen DreamStations was found to be low, according to Philips’ testing.

In September, the company agreed to resolve economic loss claims related to the recall. While it didn’t include admission of liability, wrongdoing, or fault, the company made an initial payment of $479 million for predefined cash awards to eligible U.S. participants. Philips had recorded a provision for €575 million ($615.8 million) in Q1 2023 to fund the final settlement’s estimated costs. The company also began discussion with the FDA over a consent decree around this time.

A few weeks later, a bombshell dropped—a ProPublica and Pittsburgh Gazette investigation was published that alleged Philips received its first complaints about the degraded PE-PUR foam as early as 2010 but didn’t initiate the major recall for 11 years. The publications backed their claims with an analysis of tens of thousands of reports demonstrating that Philips kept more than 3,700 complaints over 11 years from the FDA.

“…the 11 years between the first complaints and the recall reveals a different story—one of a company that sought to protect its marquee products as stock prices soared to the highest levels in decades,” the article alleged. “Again and again, previously undisclosed records and interviews with company insiders show, Philips suppressed mounting evidence that its profitable breathing machines threatened the health of the people relying on them, in some cases to stay alive.”

Philips responded to the article in a press release the same day it was published, claiming, “The articles do not present new facts and we do not agree with the characterizations made in these articles.”

The FDA ordered Philips to conduct more testing of the recalled devices in October, saying it was unsatisfied with the ongoing recall’s status. The agency didn’t believe the testing and analysis Philips shared to date were adequate to fully evaluate the risks posed to users. The company agreed to conduct the additional testing and reaffirmed using the sleep therapy devices wasn’t expected to harm patient health. The FDA also published a new resource section with its activities related to the recall.

DreamStation 2 CPAPs were subject to another Class I recall in November, this time related to reports of fire, smoke, burns, and other signs of overheating related to a possible electrical and/or mechanical malfunction. The DreamStation 2 CPAPs were distributed as replacements for recalled DreamStation 1 CPAPs. Philips said the machines could still be used if safety instructions in its IFU are followed, including letting the heater plate and water tank cool for about 15 minutes before removing it.

The proposed consent decree with the FDA and U.S. DOJ was announced in January this year. Philips agreed to halt U.S. sales of new CPAP or BiPAP therapy devices and continue to service devices already in circulation. New sleep and respiratory devices outside the U.S. continue to be sold. The consent decree was finalized in April, and provided Philips Respironics with a roadmap of defined actions, milestones, and deliverables to meet relevant regulatory requirements in order to resume U.S. sales.

“We know what we must do to meet the consent decree requirements,” Philips chief patient safety and quality officer Steve C de Baca said in a press release. “Philips Respironics has been working with the FDA, and is already making significant changes in its organization, quality management systems, and operations. This includes strengthening the quality management processes and deepening the competencies of the relevant teams.

The end of April saw a $1.1 billion settlement to address the approximately 58,000 claims filed in U.S. courts and other potential claims, resolving personal injury litigation and medical monitoring class action. The company also completed an agreement with insurers to pay Philips €540 million to cover Respironics recall-related product liability claims.

“The approved consent decree and economic loss settlement, and now the resolution of the personal injury and medical monitoring litigation in the U.S., are significant milestones and provide further clarity on the way forward for Philips,” said Philips CEO Roy Jakobs.

Philips’ total sales in its fiscal year 2023 (ended Dec. 31) reached €18.17 billion ($20.05 billion), growing 5.3%. There was a 4.1% negative currency effect mainly due to depreciation of currencies against the Euro, which affected all of the company’s business segments. Provisions charged to sales of €174 million had a negative impact of 1%, mainly connected to the proposed Respironics consent decree.

Net income had a loss of €463 million in 2023, improved from the €1.1 billion loss in 2022. Higher 2023 earnings were tempered by a €575 million litigation provision related to the Respironics recall. Adjusted EBITA was €1.92 billion—10.6% of sales—compared to 7.4% of sales the prior year. All segments posted an increased adjusted EBITA margin, driven by increases in sales, pricing, and productivity measures, partly offset by cost inflation.

In August, Italian investment firm Exor bought a 15% shareholding stake in Philips. Exor will be a long-term minority investor and doesn’t plan to buy further Philips shares in the short term. The terms of the deal allows Exor to increase participation to a maximum limit of 20% of Philips’ outstanding ordinary share capital. Exor can also nominate one member to Philips’ supervisory board.

The Diagnosis & Treatment business accrued €8.82 billion in 2023, a 6.4% leap over the previous year. Philips attributed this to double-digit growth in Ultrasound and Image-Guided Therapy and high single-digit growth in Diagnostic Imaging. The increases in these segments were related to supply chain improvements.

The Zenition 10 mobile C-arm rolled out in May. The cost-effective addition to the Image Guided Therapy Mobile C-arm platform brought flat-panel imaging and ease-of-use to routine surgery, according to Philips. It also touts unique user profiles, application-specific protocols, and a high range of movement. An uninterruptible power supply also allows the unit to be moved from one operating room to another without needing to reboot the entire system.

May also saw the launch of Philips CT 3500, a high-throughput CT system for routine radiology and high-volume screening programs. It includes CT Smart Workflow to automate steps in the scanning process, Precision Position to automatically determine patient orientation, and Precise Planning to choose the area to be scanned and determine the appropriate exam card based on anatomy. Further, the Precise Image AI-based reconstruction lets radiology departments simultaneously achieve up to 60% improved low-contrast detectability, 85% lower noise, and 80% lower radiation dose.

November’s Radiological Society of North America meeting yielded several new technologies:

• • The EPIQ Elite 10.0 and Philips Affiniti ultrasounds, which feature a single user interface combined with shared transducers and automated tools

• • BlueSealMR mobile, the first, only 1.5T fully sealed magnet with helium-free operations—the company is also extending the technology in a mobile truck

• • Philips Vue PACS AI-enabled, cloud-based solutions to boost radiology efficiency and clinical confidence

• • Three fit-for-purpose MRI coils: Smart Fit TorsoCardiac 1.5T (for the head, body, or extremities), Smart Fit 1.5T shoulder, and Smart Fit Knee 3T

Connected Care’s 2023 revenue amounted to €5.14 billion, dropping 2.5% below the prior year. Double-digit growth in Monitoring was partially offset by a decline in Sleep & Respiratory Care because of the consequences of the Respironics recall. Sales were also affected by provisions charged to sales of €174 million in connection with the proposed Respironics consent decree.

In January 2023, Philips expanded its ongoing partnership with Masimo. The duo will integrate the Masimo W1 advanced health tracking watch with Philips’ enterprise patient monitoring system.

Using Masimo’s secure health data cloud, patient info will be relayed to the patient monitoring ecosystem for clinicians to remotely monitor key health markers as patients go about their daily lives.

The combination of monitoring and connectivity technologies aims to support early discharge initiatives, hospital-at-home programs, and chronic illness management.

March saw the appointment of Julia Strandberg to lead the Connected Care business. She took office on April 24. Strandberg was previously chief commercial officer of Pear Therapeutics. Before that, she led Medtronic’s global Health Informatics and Monitoring business, was global marketing leader for Covidien’s Respiratory & Monitoring group, and served in several roles at 3M.

Virtual Care Management also debuted in March. It contains feature-specific protocols for diabetes, hypertension, heart disease, chronic kidney disease, chronic obstructive pulmonary disease (COPD), as well as gestational programs for diabetes and hypertension. The protocols combine with Philips’ connected devices and engagement tools on a secure, interoperable, cloud-based platform, delivering data and actionable insights. Licensed clinical professionals also provide monitoring and personalized health coaching.

April brought availability of Philips HealthSuite Imaging on Amazon Web Services (AWS). The duo applied Foundation Models using Amazon Bedrock to speed development of cloud-based generative AI applications that will provide clinical decision support, enable more accurate diagnoses, and automate administrative tasks. Philips will also use Amazon Bedrock as part of its efforts to build generative AI applications to advance PACS image processing capabilities.

In June, Philips and Masimo earned FDA clearance to allow SedLine brain function monitoring, Regional Oximetry (O3), and CO2 measurements in Philips patient monitors IntelliVue MX750 and MX850. The integration of Masimo measurements into Philips multi-parameter monitors will help assess and monitor blood saturation in the brain, anesthetic sedation, and patient respiratory performance with the same monitor. Data can also be shared between monitors.

The interoperability of Philips Capsule Medical Device Information Platform (MDIP) with its Patient Information Center iX (PIC iX) was announced in October. The capabilities offer a comprehensive view of patient health to improve monitoring and care coordination thanks to streaming, vendor-neutral data from ventilators, infusion pumps, and third-party vital signs monitors.

Philips also launched its Visual Patient Avatar in October. It aims to boost situational awareness with vital information that’s visualized through animations, colors, and shapes. The Avatar was inspired by an airplane’s dashboard with synthetic vision tech to illustrate flight environments. Philips took a similar visual approach to patient monitors, presenting data and info in a simple, visual way to reduce human error in the OR.

Personal Health sales had a slight 0.7% fall to €3.6 billion. There was high single-digit growth in Personal Care that was partly offset by a decrease in Oral Healthcare. The Sonicare DiamondClean 7900 Series and 7 Series shaver both began sales in China, and the Sonicare for Kids “Design a Pet Edition” electric toothbrush was introduced.

Philips’ “Other” category—comprised of Innovation & Strategy, IP Royalties, and Central costs—had sales of €612 million, compared to €643 million in 2022. This drop was mainly because of the discontinuation of innovation consultancy services offered to other companies until 2023.

€15.45 Billion ($16.5 Billion)
Prior Fiscal: €14.72 Billion
Percentage Change: +4.96%
R&D Expenditure: €2.1B
Best FY22 Quarter: Q4 €5.4B
Latest Quarter: Q1 €4.2B
No. of Employees: 77,233

Roy Jakobs knew better.

He knew there was no way to sugar-coat Philips N.V.’s rough fiscal year, so he didn’t bother to try.

Instead, Jakobs was completely transparent, directly addressing the proverbial elephant in the room. He did not mince words or downplay the medtech giant’s troubles, nor did he make excuses for its failures.

No muss, no fuss.

“2022 was a very disappointing year for Philips and its stakeholders, and we are taking firm action to strengthen patient safety and quality, improve our execution, and step up performance with urgency in 2023,” Jakobs stated in Philips’ 2022 annual report. “Philips is a company with strong market leadership positions, an extensive customer base, strong innovation portfolio, talented employees, and a global purpose-driven brand. Yet, as our 2022 performance underlines, we are not extracting the full value of our businesses and have disappointed many stakeholders.”

The source of that disappointment is, of course, Philips’ now two-year-old Respironics recall—one of the largest and most disruptive in recent memory. The massive Class 1 revocation has damaged the company’s reputation, eroded customer trust, and reduced its market capitalization by approximately $30 billion.

And the nightmare is far from over.

As of May 31, (2023), Philips had produced more than 98% of the devices and repair kits needed to replace the 5.5 million ventilators and sleep apnea machines it pulled from the market beginning in April 2021. And while the company has shipped replacement products to 2.83 million users affected by the recall (with 2.36 million devices in patients’ hands), a New York Times article last fall nevertheless criticized the company’s slow response.

ANALYST INSIGHTS: How does one describe a self-inflicted trainwreck? Unfortunately, for the many good people across Philips’ other business units, the headlines are all about their respiratory product disasters (as they should be). Hopefully, 2024 will be the year Philips can put that behind them and begin to move forward with a greater growth strategy across its business units.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

“Nearly a year and a half after the recall that involved more than five million devices worldwide, millions of Americans have endured a long wait for a device,” the article asserted. “Many have been forced to find alternative methods to ensure they can breathe at night without becoming deprived of oxygen or risking a heart attack.”

The Times piece also accused Philips of willfully ignoring safety issues with its sleep apnea machine foam for at least a half-dozen years before initiating the recall. Citing a U.S. Food and Drug Administration (FDA) review of company records, the Times argued that Philips was aware of the disintegrating foam as far back as 2015 but did not adequately evaluate the information or attempt to mitigate the problem.

The following year, the company discovered the foam could break down in as little as 12 months, FDA records indicate. Moreover, the FDA found 14 instances between 2016 and early 2021 in which Philips was either made aware of the foam issue or internally analyzed the problem, but made no effort to correct it, NPR reported last October.

One of those instances occurred in May 2018 via an email from foam supplier William T. Burnett, who told Philips, “We would not recommend use of polyester foam in such an environment…It will eventually decompose to a sticky powder,” according to a legal affidavit referenced by NPR.

Philips formally began investigating the problems with its ventilator and CPAP/BiPAP machine foam in 2019, FDA records show, but did not issue a recall for another two years.

“The way Philips was handling it was just, in my opinion, very, very poor and that made me angry,” Tom Wilson, a retired personal care product executive who runs a Facebook page about the device problems, told the Times. “This is a big recall. And it’s a dangerous recall.”

It’s also been an unending recall. Philips Respironics first provided a one-year timeline for repairing or replacing all affected continuous and non-continuous ventilators, CPAP, and BiPAP units, but that estimate eventually stretched into 2023 as the recall expanded.

Philips marked the recall’s first anniversary with a Class 1 designation—the FDA’s most serious—for several ventilator models, and gained a second such classification in early fall for 386 ventilators distributed between Aug. 6, 2020, and Sept. 1, 2021. Last September, the company warned of potential issues with its CPAP and BiPAP therapy masks containing magnetic headgear clips or straps, and in November informed the FDA of possible trouble with its reworked Philips Respironics Trilogy ventilators (those models were eventually recalled).

Then this past winter, Philips Respironics recalled some reworked DreamStation units over incorrect or duplicate serial numbers—a flub that could produce factory default settings, the wrong prescription therapy delivery, or no therapy delivery at all. The recall earned a Class 1 designation in early April. (See “Philips Respironics Recall Recap” on page 106 for a timeline of the company’s recall woes).

“I think this recall shows us how bad things can go when we don’t get it right,” Vinay Rathi, MD, an otolaryngologist at Massachusetts Eye and Ear Hospital (Boston), and medical device regulation scholar, told CBS News in March. “You basically bought a device, you find out that, actually, it could harm you. And then you struggle to find a replacement device…If I were a patient, I would be livid.”

Many patients are beyond livid: Thousands have filed suit against the company, seeking compensation for personal injuries or reimbursement for their breathing machines. Philips has earmarked $630 million for legal payouts, though that sum could fluctuate depending on the total number of lawsuits filed.

Regardless of the total, new CEO Roy Jakobs, appointed last fall, is hoping to settle economic damage claims in 2023. “I think that at least this year, we can reach a settlement on compensation for economic damage,” he told Dutch newspaper Het Financieele Dagblad in late March. Personal injury suits, he noted, could take longer to resolve. “That process is more complicated and is still at an earlier stage. We probably won’t be able to clarify that until next year,” he said, “but maybe by the end of this year.”

That disbursement could be quite debilitating for Philips’ finances, based on the 104,000 medical device reports (MDR) filed in response to the recall (April 2021 through March 31, 2023) and 346 patient deaths associated with it. The deaths, however, cannot be definitively linked to the recalled respirators because MDRs are not thoroughly vetted by the FDA.

Nevertheless, the implications are staggering, considering the pecuniary wreckage already wrought by Philips’ ever-expanding recall—namely, a workforce cut of 10,000 (former CEO Frans van Houten was among those out of a job); a 70% plunge in share price; the forfeiture of management bonuses, and market share abdication to rival ResMed.

While not as obvious in fiscal 2022, the recall still had a dampening effect on Philips’ finances. Revenue climbed 4% on a nominal basis to €17.83 billion, but declined 3% on a comparable basis, though the company blamed the loss on “operational and supply challenges, lower sales in China, the consequences of the Respironics field action, and the Russia-Ukraine war.”

Philips posted a €1.53 billion operating loss for the year, and a €1.62 billion net income deficit. Comparable order intake dropped 3% in contrast to 4% growth in 2021, due to a decrease in the company’s Connected Care business, which allows hospitals and other healthcare sites to share data securely with doctors and nurses.

Not surprisingly, the Respironics recall negatively impacted Connected Care sales last year despite the addition of Cardiologs’s technology and a patch-based, clinical-grade electrocardiogram (ECG) to its lineup.

Gained through acquisition, Cardiologs’ solutions further strengthened Philips’ cardiac monitoring and diagnostics offering with software technology, ECG analysis, and reporting services. The deal—announced in November 2021—gave Philips a vendor-neutral heart disorder screening tool and ECG analysis applications based on machine learning algorithms. The French firm’s technology accelerates diagnostic reporting, decreases the occurrence of reporting errors, and streamlines clinician workflow and patient care, thus empowering clinicians to deliver expert cardiac care faster and more efficiently.

Shortly after closing the Cardiologs deal in January (2022), Philips introduced the industry’s first full-service, at-home, 12-lead ECG solution for use in decentralized clinical trials. The clinical-grade solution is the most advanced patient-centric ECG offering within the company’s cardiac monitoring portfolio, pairing data readings comparable to clinical, site-based ECGs with Philips’ cloud-based data collection and analysis services.

“Our customers are seeking solutions that will help them address key challenges that can stand in the way of extracting meaningful insights from their clinical trials,” Andy Broadway, general manager of Ambulatory Monitoring and Diagnostics at Philips, said upon the 12-lead ECG solution’s debut. “Our growing portfolio of remote monitoring solutions help to curb patient attrition by reducing the amount of site visits required during the trial period, helping to improve both the quality of the outcome and the patient experience overall.”

In March, Philips received FDA 510(k) clearance for the latest Philips Capsule Surveillance solution. Capable of utilizing streaming data from virtually any connected medical device, the solution aggregates patient data, analyzes it to generate actionable insights and alerts, and sends timely notifications to the patient’s caregivers so they can intervene before deterioration progresses further. The latest Philips Capsule Surveillance release includes expanded interoperability into hospitals’ existing mobile clinical communication and collaboration tools and electronic intensive care units and virtual care population health management systems, offering more visibility on live streaming data, waveforms, device alarms, and contextual alerts.

Unfortunately, none of Connected Care’s portfolio enhancements helped boost revenue in 2022. Sales slipped 3.7% to €4.4 billion on a nominal basis, subverted by both the recall and supply chain headwinds.

Those particular forces, however, had little impact on Philips’ Personal Health and Diagnosis & Treatment businesses, which expanded sales 14.2% and 6.2% to €1.74 billion and €9.17 billion, respectively, in FY22. The company attributed the Diagnosis & Treatment business increase to mid-single-digit growth in Image-Guided Therapy and low single-digit growth in Enterprise Diagnostics Informatics, though both gains were offset by declines in Ultrasound and Diagnostic Imaging due to specific electronic component shortages.

Like Connected Care, the Diagnosis & Treatment business enhanced its portfolio through acquisition, closing a deal for Vesper Medical Inc. in Q1 2022. The minimally-invasive peripheral vascular device developer helps expand Philips’ roster of diagnostic and therapeutic products with an advanced venous stent portfolio for treating deep venous disease.

Besides the Vesper Medical deal, Philips augmented its Diagnosis & Treatment lineup last year through various product clearances and introductions. They included:

• • Expanded FDA 510(k) clearance for Collaboration Live for remote diagnostic use on additional mobile platforms. Available on Philips Ultrasound Systems EPIQ and Affiniti, Collaboration Live enables clinicians to collaborate in real-time with colleagues to complete image acquisition and diagnosis, regardless of location.

• • The launch of Ultrasound Workspace, a vendor-neutral echocardiography image analysis and reporting solution that can be accessed remotely via a browser.

• • FDA 510(k) clearance for the MR 7700 3.0T MR system, which enables radiologists to obtain six different clinically relevant nuclei across anatomies. In addition to seamless integration of multi-nuclei capabilities for enhanced anatomical and metabolic/functional imaging, the MR 7700 system reportedly achieves 20% more functional magnetic resonance imaging (fMRI) volume and 50% more diffusion tensor imaging (DTI) directions, facilitating an improved level of detail with high-resolution images, according to Philips. The system’s XP gradient coils also allow radiologists to reduce scanning times by 35% and bolster signal-to-noise ratios by up to 35%.

• • FDA 510(k) clearance for its newest 5000 Compact Series compact ultrasound system, which delivers cart-based premium image quality in a compact form. It features a wide range of diagnostic solutions for point of care, cardiology, general imaging, and obstetrics/gynecology. The Ultrasound 5000 Compact Series features real-time collaboration and remote consultations and training via Philips Ultrasound Collaboration live tele-ultrasound, and has integrated connectivity to streamline workflows.

• • Introduction of the next-generation Advanced Visualization Workspace platform with AI-enabled algorithms and workflows. This latest innovation is vendor-neutral, providing a single, advanced platform for multiple modalities across cardiology, oncology, neurology, and radiology with a suite of advanced visualization solutions to support care teams, and tailored to fit the needs of any hospital network, from a single workstation to an enterprise solution.

€14.72 Billion ($16.67 Billion)
Prior Fiscal: €15.19 Billion
Percentage Change: -0.9%
R&D Expenditure: €1.8B
Best FY21 Quarter: Q4 €4.9B
Latest Quarter: Q1 €3.91B
No. of Employees: 78,189

Surely, this isn’t the kind of world Aladdin and Jasmine imagined.

It’s certainly not the one immortalized in song.

New? Definitely.

But that “fantastic” point of view is gone. So are the unbelievable sights and endless diamond sky to which the pair melodically refer—they’ve both been replaced by an endless white or light gray monotone.

And that “indescribable” feeling”? It actually could be any number of sentiments: boredom, confusion, disgust, anxiety, disappointment, or frustration.

Or it could be magnanimity.

It most likely is the latter emotion, as neither Aladdin nor Jasmine seem capable of such menial moods.

No, magnanimity would make the most sense since the pair would be traveling within an MRI machine for children’s sake. Aladdin and Jasmine are among a half-dozen beloved Disney characters chosen last year to help Royal Philips N.V. create a kid-friendly imaging environment.

“Undergoing an MRI exam can be quite challenging, especially for children,” Werner Satter, general manager, Philips Healthcare Experience, explained in an online video. “You need to lie still for quite a long period of time. Now, while being in the scanner, there’s also a lot of sound and noise, and this can be very intimidating.”

To reduce that intimidation, Disney developed custom-made animations and stories for the Philips’ Ambient Experience, a clinical setting design approach that combines dynamic lighting, video projections, and sound to create a friendlier, more relaxing environment for patients undergoing MRI scans.

Featuring Ariel, Aladdin and Jasmine, Marvel’s Avengers, Mickey Mouse, Spiderman, and Yoda, the stories aim to calm and support children during MRI scans. Philips tested the custom-made animations at six European hospitals last summer to determine their efficacy. A study conducted by the New Economics Foundation determined that well-known Disney characters can help build trust for children in anxious circumstances as well as inspire and create positive feelings, experiences, and memories.

“I think it’s great to be working with Philips on this one. Philips obviously is a technology company but I love the fact that Philips is actually thinking about the human journey in this one,” Jan Koeppen, president of The Walt Disney Company EMEA, said when the company’s partnership with Philips was announced in March 2021. “What a great thing to lean into. We as Disney obviously very often think about how can we make children’s experiences better? I love the idea, therefore, of marrying our stories up with Philips technology to improve a child’s hospital experience.”

Philips’ collaboration with Disney was one of the few bright spots amid a disappointing fiscal year. A still-broken supply chain, declining hospital ventilator demand, equipment installation postponements, and a Class I recall eroded sales 0.9% to €17.15 billion. Income from operations fell by more than half (to €533 million) and gross margin shrunk 8.3% to €7.16 billion (41.8% of sales) but net income jumped 64% to €3.32 billion, due mostly from the €3 billion sale of its Domestic Appliances business last spring.

Solid performances from two of Philips’ three reporting divisions saved the firm from further financial ruin in FY21. Diagnosis & Treatment sales swelled 8.1% to €8.63 billion, driven by double-digit growth in Image-Guided Therapy and mid-single-digit increases in both Diagnostic Imaging and Ultrasound.

Key to the Diagnosis & Treatment unit’s stellar showing was a bevy of product approvals and introductions. Among the innovations gaining U.S. Food and Drug Administration (FDA) 510(k) clearance were the Philips SmartCT application software and MR 5300 System, the latter of which uses artificial intelligence to improve workflow, efficiency, and image quality. The 1.5-tesla scanner with BlueSeal helium-free technology sports a 55-cm field of view, allowing for extended anatomical coverage, and supports Philips’ dStream Breeze radiofrequency coils.

SmartCT—cleared in April 2021—is part of Philips’ Image Guided Therapy System Azurion, which launched in September 2020. The image acquisition, visualization, and measurement software brings intuitive touchscreen control of the Azurion platform to the table-side, according to the company. The software provides interventionalists with CT-like 3D images (called Cone Beam CT) to support diagnosis, therapy planning, treatment, and follow-up for interventional radiology procedures. SmartCT is used for angiography, neurology, soft-tissue imaging, and guidewire or catheter navigation, and supports treatment for aneurysms, vascular diseases, and liver tumors.

Eight months after greenlighting SmartCT, the FDA granted Philips de novo clearance for its CavaClear inferior vena cava (IVC) filter removal laser sheath, a device designed to remove an IVC filter when previous methods have failed. CavaClear received FDA Breakthrough Device designation last July.

CavaClear uses circumferential tissue ablation to help capture an IVC filter within seconds of activation. The device has been clinically proven to provide a more than 99% success rate with low complication rates.

“Our strategy and portfolio continued to resonate very well with customers and consumers, generating solid demand for our products and solutions throughout the year,” Philips CEO Frans van Houten told analysts during a Q4/FY21 earnings call in late January. “Our Image-Guided Therapy business is really on a tear. We see strong demand, a lot of interest. We see hospitals wanting to buy more ambulatory surgical centers and expand capacity for elective procedures. We see minimally invasive therapy is being expanded beyond cardiovascular into neuro, stroke, spine, into minimally invasive oncology and so broader and broader application, more therapeutic areas, and Philips is very well-positioned in all of this. Also, our portfolio of devices very much reinforces our strengths in this business.”

That portfolio included the debuts of a patient monitoring system, echocardiography catheter, and intravascular imaging platform.

In July, the Mayo Clinic baptized the company’s VeriSight Pro ICE catheter in a minimally invasive heart surgery. The catheter provides 2D and 3D live image guidance for various procedures in structural heart disease and electrophysiology, allowing interventionalists to better navigate procedures. VeriSight Pro also offers a 90-by-90-degree 3D field of view, thereby enabling physicians to simultaneously look at two scan planes (i.e., long and short left atrial appendage axes).

Philips launched its IntraSight Mobile platform in North America last November at the Transcatheter Cardiovascular Therapeutics Annual Meeting in Orlando. IntraSight Mobile integrates imaging and physiology applications on a mobile system for coronary and peripheral artery disease therapy. The IntraSight platform allows interventionalists to perform intravascular ultrasound imaging and physiologic measurements of fractional flow reserve and instantaneous wave-free ratio to accurately locate ischemia-causing lesions.

“…we’re showing how we are continuously innovating and expanding our integrated ecosystem of interventional imaging systems and diagnostic and therapeutic devices to provide clinicians with a complete solution, from diagnosis to treatment and therapy monitoring, to optimize their workflow and the treatment of each individual patient,” Chris Landon, senior vice president and general manager, Image Guided Therapy at Philips, said amid the IntraSight launch.

Philips further expanded its interventional imaging systems portfolio last year by acquiring Vesper Medical, a Wayne, Pa.-based developer of MI peripheral vascular devices. The mid-December purchase provides Philips with a venous stenting solution that addresses the root cause of chronic deep venous disease and complements the company’s IVUS offering in venous imaging.

Acquired innovation was lacking in Philips’ Diagnostic Imaging and Ultrasound franchises last year, but the divisions still managed to complement their offerings through numerous product introductions. Portfolio additions included:

• • The Philips Abdominal Aortic Aneurysm (AAA) Model, a patient-friendly solution for AAA treatment. Based on 3D ultrasound, the Philips AAA Model delivers accurate diagnostic information without exposing patients to high doses of radiation and nephrotoxic contrast agents.

• • The AI-enabled Precise Suite solution for Philips’ Incisive CT platform. Precise Suite delivers smart workflows from image acquisition through reporting with AI-enabled image reconstruction, automated patient positioning, motion-free cardiac image capture, and real-time interventional guidance.

• • The Spectral CT 7500, featuring intelligent software for delivering high-quality spectral images on every scan, every time without the need for special protocols. Spectral chest and head scans take less than one second, and a full upper body spectral scan takes less than two seconds. The CT 7500’s scanner uses two different scintillator materials that can detect two different X-ray energy levels.

• • IntelliSite, an enterprise-wide digital pathology platform featuring scalable software tools designed to streamline workflows, enhance diagnostic confidence, facilitate collaboration, integrate AI, and increase pathology lab efficiency.

• • Enhanced EPIQ and Affiniti ultrasound systems with tele-ultrasound capabilities and liver fat quantification tools that allow for non-invasive early-stage fatty liver disease diagnosis.

• • The CT 5100 Incisive platform with CT Smart Workflow, which provides access to the company’s Technology Maximizer program and can potentially lower operating expenses by an estimated $420,000.

• • The newly-designed Philips Scoring Balloon Catheter RX – AngioSculpt Evo, featuring a smaller tip for smoother lesion entry, a hydrophilic coating to reduce friction, and a laser-cut hypotube for enhanced flexibility.

• • The Nexcimer laser system, with plug-and-play simplicity for coronary and peripheral artherectomy and lead extraction procedures. Smaller, lighter, and more maneuverable than the previous generation, the system starts up within 30 seconds, uses standard medical-grade 100-240 volt outlets, and has an intuitive touchscreen interface with guided workflow prompts.

New product introductions extended beyond the Diagnosis & Treatment business last year, though they were not as abundant in Personal Health or Connected Care.

Personal Health debuted the Pregnancy+app and an electric breast pump that mimics a suckling baby’s wave-like tongue motion, while Connected Care launched two new HealthSuite informatics solutions—Patient Flow Capacity Suite and Acute Care Telehealth—as well as the Philips Medical Tablet, an end-to-end portable monitoring kit for remotely tracking larger patient populations.

Also unveiled by Connected Care in FY21 was the portable IntelliVue X3, MX750, and MX850 patient monitors. The IntelliVue X3, released in May, allows for monitoring during image-guided procedures on Philips’ Azurion platform, and helps improve workflow. The MX750 and MX850 monitors received FDA clearance in December and provide real-time vital sign data as well as support for remote hospital monitoring.

“Inspired by our purpose to improve people’s health and well-being, we innovate solutions that deliver meaningful impact,” van Houten wrote in the company’s 2021 annual report. “We have strengthened our portfolio through our R&D programs, partnerships, and acquisitions.”

Those acquisitions, however, only benefitted the Connected Care business dossier. The $635 million purchase of Capsule Technologies Inc. in January 2021 expanded Philips’ care delivery and integrated solutions offerings, while the November deal for French startup Cardiologs advanced the firm’s AI and cloud technology capabilities in both patient monitoring and cardiology. Additionally, the $2.8 billion deal for BioTelemetry (completed last February) expanded Philips’ remote monitoring prowess in patients’ homes.

Neither the acquisitions nor new product releases, though, could reverse the financial carnage wrought by a Class I recall of certain Philips Respironics continuous and non-continuous ventilators, including CPAP and BiPAP machines to treat sleep apnea. Initiated in June 2021, the recall contributed to a 22.6% decline in Connected Care revenue (to €4.59 billion). The loss more than offset the 9% spike in Personal Health sales (€3.41 billion) and 8.1% gain in Diagnosis & Treatment proceeds.

“We regret any concern or inconveniences caused by this field action and we are committed to supporting the community of patients who rely on our sleep and respiratory care solutions for their health and quality of life, and the physicians and customers who are dedicated to meeting patient needs,” David Ferguson, business leader of Philips Respironics, stated in May 2022. “We are replacing or repairing the devices related to the Respironics field action as fast as possible and are continuing to update patients and customers about the progress of the program. More than 1,000 of our colleagues are working around the clock on every aspect of the remediation.”

Philips recalled the ventilators upon discovering the built-in polyester-based polyurethane foam (PE-PUR) used for sound and vibration reduction could potentially harm patients. In its recall notice, the company said the foam could possibly “break down,” sending chemicals and black debris into the devices’ air pathway, where it might be inhaled or swallowed by patients, irritating their skin, eyes, or respiratory tract. The debris and chemicals also could conceivably damage internal organs or have other toxic carcinogenic effects.

The recall affects nearly two dozen models of Philips Respironics ventilators with product codes BZD and MNS, manufactured between 2007 and April 2021, and distributed beginning in July 2009.

Philips, of course, has offered to repair or replace the damaged models; the company has produced more than 1.5 million repair kits and replacement devices, of which more than half have reached customers.

To maximize the remediation program’s scope, the FDA ordered Philips to notify all device users, durable medical equipment suppliers, distributors, retailers, and Respironics product prescribers about the recall and possible health risks. Philips aims to complete the ventilator remediation program in Q4 this year.

“…we have a strong program management in place to ensure the corrective actions related to the recall are completed as fast as possible,” van Houten told analysts during a late January (2022) conference call. “We have submitted a detailed action plan to the FDA. Philips Respironics continues to engage with the FDA and we will work closely with the agency to clarify and follow up with the inspectional findings and its requests. As part of our focus on quality…we have reinforced the awareness and focus on patient safety across the company.”

Such a focus has been quite a challenge, though. More than 21,000 medical device reports—including 124 reports of deaths, have been linked to PE-PUR foam breakdown in Philips Respironics ventilators between April 2021, and April 30, 2022. In addition, the company is facing hundreds of CPAP-related lawsuits and a potential U.S. Department of Justice investigation.

$19.32 Billion
Prior Fiscal: $17.10 Billion
Percentage Change: +13%
No. of Employees: 81,592

At the beginning of the COVID-19 pandemic, the need for critical care ventilators was enormous due to severe respiratory distress brought on by the disease. Last April, Netherlands-based healthcare device maker Philips answered the call to action.

The U.S. government and Philips agreed to team up to increase hospital ventilator production in U.S. sites, aiming to double production by May 2020 and achieve four-fold increase by the third quarter to supply the U.S. and global markets. Philips engaged manufacturing partners Flex and Jabil in order to do so, and introduced the versatile and easy-to-use Respironics E30 ventilator, which gained emergency use authorization (EUA) last April.

However, in August—following a July report by the U.S. Congress House Subcommittee on Economic and Consumer Policy that found the White House had overpaid Philips by at least $500 million—the U.S. Department of Health and Human Services partially terminated the contract to deliver 43,000 bundled EV300 ventilators by the end of 2020. Philips completed the deliveries for August, resulting in 12,300 bundled ventilator configurations delivered. As a result, Philips had to cut its 2020 earnings outlook.

Ventilators weren’t the only supplies Philips provided to support the healthcare burden brought on by the pandemic, however. The company made many more strides to provide critical products:

• • March: Production ramp-up of critical care products—vital signs monitors, hospital ventilators, associated medical consumables

• • April: FDA waiver for available consumer monitors at home with Philips IntelliSite Pathology Solution

• • April: Released dedicated and scalable telehealth solution to manage increased patient flows

• • May: 510(k) for EPIQ series, Affiniti series, Lumify, CX50, and Sparq diagnostic ultrasound systems, off-cart QLAB Advanced Quantification Software for lung and cardiac complications

• • May: 510(k) for Philips Biosensor BX100 to help manage confirmed and suspected COVID-19 patients

• • June: EUA for IntelliVue Patient Monitors MX750/MX850 and IntelliVue Active Displays AD75/AD85 for COVID-19 patients

As a result, the Dutch medical device maker was able to achieve double-digit growth during the pandemic, truly an amazing feat. “There is a structural higher demand for the healthcare informatics that Philips has already invested in for several years and now we see the validation of that strategy,” CEO Frans van Houten told Reuters.

ANALYST INSIGHTS: As a company with large businesses in monitoring and respiratory products, Philips had a huge year during COVID. However, 2021 is proving more challenging as they have had recall issues with some of their core sleep and respiratory products. It will be interesting to observe how management is able to respond and execute to keep Philips on track for the next year.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Philips achieved $19.32 billion in medical device proceeds last year, an impressive 13 percent rise over the year prior. This was mainly a result of the 19.3 percent skyrocket in the Connected Care businesses, which accrued 5.6 billon euros in revenue last year. Monitoring and analytics products made up 40 percent of the business’s revenue, reaching 2.2 billion euros.

The Rapid Equipment Deployment Kit was an innovation borne from the COVID-19 pandemic. Deployed last August, the ICU patient monitoring solution contains 20 ICU monitors, 20 measurement servers, and a central management monitoring station. A hospital’s general care area can be converted into a critical care level in a few hours thanks to the pre-built, preconfigured, and prepacked kits. They come with step-by-step instructions and can be transferred from hospital to hospital as necessary.

The Tempus ALS remote monitoring and defibrillator solution came last July. It consists of a remote portable vital signs patient monitor (Tempus Pro) and remote professional defibrillator (Tempus LS-Manual) The software platform permits real-time clinical data and events transfer, interactive ECG measurement, and two-way communication for rapid clinical and transport decision support and electronic patient care recording integration in emergency settings.

Philips scooped up remote cardiac diagnostics and monitoring firm BioTelemetry for $2.8 billion in December. Via the deal, Philips gained wearable heart monitors (mobile cardiac outpatient telemetry patch and extended Holter monitor) that detect and transmit abnormal heart rhythms wirelessly, AI-based data analytics, and services. With over 30,000 unique referring physicians per month, BioTelemetry provides services for over 1 million patients per year.

Sleep and respiratory care devices comprised 49 percent of the segment’s revenue, accruing 2.7 billion euros last year.

In July, Philips debuted the Respironics Mask Selector, a clinically-validated mask selection, sizing, and fitting solution that helps providers fit patients with the right CPAP mask. Using advanced 3D camera technology, each scan captures 150 frames and 15 million points of facial geography data. Philips’ proprietary algorithm then identifies the 46,200 data points most critical to provide an accurate and precise mask recommendation. This data is combined with a patient questionnaire to make a personalized recommendation of Philips Respironics mask type, cushion, and frame size for PAP therapy.

November saw the rollout of the BiPAP A40 EFL non-invasive ventilator. It includes a therapy feature for COPD patients to breathe easier, identifying expiratory flow limitation (EFL) and treating it with targeted therapy to reduce the work of breathing. Proprietary ExpiraFlow technology automatically spots EFL more accurately than any alternate methods, according to the company. It leverages a connected solution platform to streamline diagnostic work.

DreamWare Silicone Pillows for the DreamWear CPAP mask line were introduced in North America in December. The all-silicone pillow cushion was designed using data from thousands of 3D facial scans to automatically conform to fit and seal various nostril shapes and sizes, reducing pressure points inside the nostril. According to the company, the new silicone pillows mask is the lightest tube-on-top pillows CPAP mask available today.

Therapeutic care claimed 5 percent of the franchise’s proceeds with 280 million euros.

Last June the firm received FDA premarket approval for its professional HeartStart FR3 and public-access HeartStart FRx automatic external defibrillators (AEDs). FR3 has advanced features to assist medical personnel and first-responders treat cardiac arrest. FRx touts intuitive, step-by-step voice instructions, including CPR guidance for emergency use in public spaces.

Connected care informatics and population health management made up the remaining 6 percent of Connected Care revenue with 336 million euros.

Last March the firm launched an emergency care pre-informatics suite in the U.S. to spot life-threatening conditions remotely, improve on-scene crew support accuracy, and boost in-hospital care tailoring based on pre-hospital physiology. The software gives real-time, bidirectional feedback between emergency responders and the clinicians in the hospital. Combined with the company’s vital signs monitor, the web-based dashboard allows data transmission so remote specialists can immediately review vitals and plan for the patient’s arrival.

March also saw the release of the HealthSuite System of Engagement, an integrated, modular set of standards-based capabilities that support development of digital health propositions, including new capabilities for cloud-based managed AI workflow and DICOM interoperability. By taking a federated approach to data integration, HealthSuite System of Engagement supports healthcare providers in capturing the value of data from across their existing IT infrastructure.

Last May the company announced a Clinical Trial Accelerator for its HealthSuite platform that helps integrate, analyze, and store clinical and patient-reported data from multiple sources for actionable insights. Using the technology enables patient-centric trials at home. The AI Analytics Workbench provides standards-based interoperability for Digital Imaging and Communication in Medicine (DICOM) data, and the HealthSuite Clinical Data Lake scalable micro-service acts as a centralized big data repository for high-volume clinical data collection studies. It also includes controls to curate and manage data in a way that addresses regulatory requirements.

Philips launched the Virtual Care Station telehealth environment last August. The pod-based solution delivers virtual care services in convenient neighborhood locations, connecting provider and insurance networks. It features a camera, lighting, and speakers, for a high-quality vision of the patient and area of concern. Virtual Care Station is based on technology developed for Philips’ ATLAS program (Accessing Telehealth through Local Area Stations), which was created for U.S. veterans.

Philips released proprietary cybersecurity services in November. Philips Cybersecurity Services comprise an end-to-end suite of technologies and services to safeguard medical systems, devices, and related software solutions, regardless of manufacturer. The services are supported by a new partnership with CyberMDX, a purveyor of healthcare cybersecurity capabilities for hospital digital environment mapping and evaluation, medical device risk assessment, security prioritization, threat detection and intelligence, intrusion prevention, and related support.

Diagnosis and Treatment sales amounted to 8.2 billion euros, dropping 3.7 percent from the year prior due to postponement of installation and elective procedures as a result of COVID-19. Diagnostic imaging products make up 41 percent of this income with 3.4 billion euros of proceeds in 2020.

At last year’s Radiological Society of North America (RSNA) meeting, Philips debuted a vendor-neutral, multimodality radiology operations command center that adds secure, digital, virtual scanner access to existing imaging installs. Philips Radiology Operations Command Center enables virtualized imaging operations via a private, secure, and auditable telepresence platform. It connects imaging experts at a central command center with technologists and onsite staff in locations across an entire enterprise for real-time, over-the-shoulder collaboration and support.

The firm also released its Advanced Visualization Workspace – IntelliSpace Portal 12 at last year’s RSNA meeting. IntelliSpace Portal touts AI-assisted quantitative assessment and automatic results generation for diagnostic workflow. Clinical packages for cardiology, pulmonology, oncology, and neurology were also launched with IntelliSpace Portal 12. New features include AI algorithms for lung nodule detection, cardiac functional analysis, and quantification of pulmonary infiltrates associated with COVID-19 patients.

Ultrasound revenue, which comprised 20 percent of Diagnosis and Treatment’s revenue, was 1.6 billion euros.

The EPIQ Elite pediatric ultrasound was announced last May. Designed specifically for children, it combines dedicated transducers, enhanced processing, and software tools optimized for pediatric diagnostics. The new mC12-3 pediatric transducer, according to Philips, offers 30 percent greater penetration for more detailed images. “…the intracranial detail we see in the neonatal head is truly exceptional,” a Phoenix Children’s Hospital pediatric radiologist told the press.

August saw the announcement of the Affiniti CVx dedicated cardiovascular ultrasound. It includes a configurable UI, automated tools, and transducer sharing. It also touts AutoStrain technology, which has been demonstrated to reduce strain analysis time by 70 percent. Using Affiniti CVx, cardiology departments can standardize their ultrasound fleet, simplify cross-platform clinician training, and reduce total cost of ownership. 3D Auto LAA software enables faster measurements of the left atrial appendage (LAA) from 3D to increase procedure efficiency.

Enterprise diagnostic informatics accrued $656 million last year. Image guided therapy achieved 2.5 billion euros in sales, and this segment was most active in terms of product releases and M&A activity.

The company began its deal for Intact Vascular, a developer of minimally-invasive peripheral vascular devices to treat peripheral artery disease, last August. From the deal, Philips obtained the Tack Endovascular System, a minimal-metal peripheral arterial dissection repair device for use after balloon angioplasty in above- and below-the-knee operations. The Tack Implant leaves less metal behind compared to stents, preserving future treatment options and ultimately, limbs. The deal was completed in the third quarter of last year.

“Through the integration of our interventional imaging systems and diagnostic and therapeutic devices, we will be able to provide clinicians with a complete procedural solution to optimize the treatment of patients with [peripheral artery] disease,” Philips Sr. VP and GM of Image Guided Therapy Devices Chris Landon commented when the deal was announced.

August also saw the introduction of OmniWire, a solid core pressure wire for coronary artery interventional procedures. The solid core construction allows easier maneuvering into the circulatory system to measure blood pressure along the vessel and guide catheter and stent delivery. Advanced conductive ribbons are embedded in its outer polymer layer to communicate pressure information. The distal part of the wire is made from nitinol, and the proximal part is constructed from a high-strength cobalt alloy that provides the high durability required for complex and multi-vessel cases.

Also in August, the company gained FDA clearance for Onvision ultrasound guidance for real-time needle trip tracking. It combines the B. Braun and Philips Xperius ultrasound system with the Stimuplex Onvision needle to accurately position the needle tip for peripheral nerve blocks. It was the latest advancement in Philips and B. Braun’s multi-year alliance for innovation in ultrasound-guided regional anesthesia. The tip tracking technology indicates needle tip position in relation to the ultrasound viewing plane to an accuracy of 3 mm, according to the company. A micro-sensor on the needle indicates real-time needle tip location.

New imaging and workflow enhancements were added to the KODEX-EPD cardiac imaging and mapping system in August as well. Advances in the new release include faster, high-resolution imaging, mapping functionality and point density improvements, and new visualization options such as multi-chamber view to understand relative positions of adjacent chambers and glass view, which provides improved perception of 3D catheter location and orientation in the heart. For cryoablation procedures, KODEX-EPD offers enhanced occlusion assessment functionality with high accuracy and a simplified workflow.

The next-gen Azurion image-guided therapy platform was introduced in September. It integrates control of imaging, physiology, hemodynamic, and informatics applications, as well as intuitive control of the gantry, at the tableside, allowing clinicians to control all compatible applications from a single touch screen while performing procedures. Philips also released a 3D imaging solution called SmartCT, which guides users through image acquisition so they can review and interact with the acquired CT-like 3D images on the tableside touch screen module using 3D visualization and measurement tools.

Azurion Lung Edition also hit the shelves in September. The suite combines CT-like 3D images acquired at the tableside (cone beam CT) with live X-ray guidance and advanced tools to support image-guided lung procedures. The system is designed for bronchoscopy procedures, enabling performance of minimally invasive endobronchial biopsies and lesion ablation during the same procedure.

Completing the trifecta of September releases in this franchise was the QuickClear mechanical thrombectomy system. The compact, single-use system provides an all-in-one aspiration pump and catheter for blood clot removal from peripheral arterial and venous systems. Aspiration power consistency during the procedure provides physicians more control and supports faster procedure times. The system’s range of catheters includes a large 10F aspiration catheter, providing 59 percent more aspiration volume than 8F aspiration catheters, according to Philips.

The Personal Health franchise accrued 5.4 billion euros last year, falling 7.6 percent from the year prior. Oral healthcare proceeds amounted to 1.1 billion euros, and mother and child care sales reached $324 million.

Last June saw the rollout of the Avalon CL Fetal and Maternal Pod and Patch remote monitoring suite, consisting of perinatal analytics, visualization software, and a battery-operated monitor. The monitor reduces unnecessary patient-clinician interactions to minimize COVID-19 risk in pregnant women. A single-use, 48-hour electrode patch placed on the abdomen continuously monitors maternal and fetal heart rate and uterine activity. It’s designed to be placed only once, unlike elastic belts and sensors that require repositioning. The Avalon CL Transducer System allows cableless monitoring of up to three fetuses, connecting to the hospital’s wireless LAN to expand the ambulation area.

AT A GLANCE
$16.09 Billion ($20.7B total)
Prior Fiscal: $16.30 Billion
Percentage Change: -1.2%
No. of Employees: 77,400 (total)

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.

$12.4 Billion ($25.8B total)
NO. OF EMPLOYEES: 63,730 (113,678 total)

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.’”

No, never.

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.

$11.9 Billion
NUMBER OF EMPLOYEES: 37,008

Philips, on the whole, is a company going through a significant transformation that ultimately will see the emergence of two unique entities. The first, which will remain as Philips, will support the healthcare world with its novel technology solutions. This unit will include not only the current Healthcare division, but also the Consumer Lifestyle portion; combined, the offerings are referred to as the HealthTech portfolio. While founded on lighting, the company finds itself seemingly moving away from that technology. With that in mind, the yet-to-be-named second firm will become a new company that is primarily made up of the Lighting unit.

By maintaining the ability to deliver care through advanced technology from the doctor’s office to the hospital through to patients’ homes, Philips views healthcare as a high-value growth opportunity. Meanwhile, by separating out the lighting business, it sees more ability to strengthen its position in the market while delivering advanced solutions.

“It is my deepest conviction that both Philips and Lighting stand to benefit from the separation, as it will enable greater focus on their respective attractive markets and allow them to capture higher growth and deliver higher profitability,” said Frans van Houten, CEO of Royal Philips, regarding the forthcoming company split.

The path that has led Philips to this step in its strategy began with the company embarking on its Accelerate! journey, which started in 2011 as an effort to improve performance. A split of the company would represent the most dramatic change that’s occurred since the start of the initiative. Prior to this phase, the effort has led to the implementation of the Philips Business System—a strategic push to help the company enhance its focus on quality and excellence while simultaneously improving productivity. van Houten credits the many large-scale, multi-year hospital deals Philips won in 2015 to the improvements made through these efforts.

Figures

Those wins and the fruits of the company’s labor are quite apparent in the financial statement for 2015. The Philips healthcare division saw an increase of 19 percent in sales over the prior year, which translated to 10.9 billion euros. When digging deeper into the sales numbers, Philips demonstrates the importance green product solutions have become in healthcare. The company defines its green technologies as offering “a significant environmental improvement in one or more green focal areas,” such as energy efficiency, packaging, weight, recycling and disposal, or lifetime reliability. Sales of those products saw an increase of 31 percent over 2014—a figure of 4.58 billion euros.

Geography was irrelevant to Philips’ success last year, as both mature markets and growth sectors saw double-digit percentage sales increases. Encompassing Western Europe, North America, Japan, South Korea, Israel, Australia, and New Zealand, mature areas accounted for 8.2 billion euros, representing an increase of 19 percent over the prior year. Growth geographies—Asia Pacific (excluding those listed in the mature regions), Latin America, Central and Eastern Europe, the Middle East (minus Israel), and Africa—contributed 2.70 billion euros, an increase of 18 percent over 2014.

“We reinvigorated our Healthcare business in North America and gained momentum in winning large-scale multi-year healthcare enterprise deals,” said van Houten. “And at our Imaging Systems facility in Cleveland, we saw a gradual ramp-up of production in the course of the year.”

Philips put its increased sales directly back into further development of innovation (at least in part). Devoting a five-year-high of 7.9 percent of total sales (1.92 billion euros) to research and development expenses, Philips continued to plan for future success. While the specific amount of investment made in the healthcare space was not disclosed, Philips put 495 million euros toward green innovation. Tied directly to prior years’ investment in R&D, the company filed for 1,750 new patents in 2015 across all divisions—also representing a high mark over a five-year-period.

Volcano Acquisition

Just before the close of 2014, Philips announced the acquisition of Volcano Corporation, a provider of image-guided therapy technologies. Philips had maintained long-standing partnerships with the company prior to the acquisition, and the firm’s assets blended nicely with Philips established image-guided therapy business group. On Feb. 17, 2015, Philips completed the acquisition.

“The completion of the Volcano acquisition is an important milestone in our strategy to become a systems integrator in the fast growing image-guided minimally invasive surgery market and accelerate our growth in that market,” van Houten said in a company statement regarding the completion of the acquisition. ”The combination of Volcano’s broad portfolio of imaging and measurement catheters and Philips’ interventional imaging solutions allow us to provide our customers with an integrated solution to improve procedural outcomes at a decisive stage in the health continuum. ”

Research Alliance

In May, parent company Royal Philips signed a five-year research alliance with the Massachusetts Institute of Technology (MIT) as the first step toward the development of technology solutions that would ultimately broaden the company’s HealthTech offerings. The agreement would also lead to innovations for the company’s lighting business unit.

At a budget of $25 million, the agreement reflects the company’s largest research alliance investment in the region. The deal also marks the relocation of Philips’ research center to Cambridge, Mass., in order to take advantage of potential research opportunities with other universities in the area, as well as MIT faculty and Ph.D students.

“The Boston area is rich with innovative talent that is regularly applying new thinking to solving big societal issues and developing disruptive technologies that can address those issues in new ways; it’s a culture and vision that is very much in line with that of Philips,” said Henk van Houten, global head of Philips Research. “By moving to Cambridge and collaborating with MIT, its staff, and its partners, Philips can work with some of the best minds in the world on healthcare delivery, looking at ways to better prevent, manage, or treat common diseases across the health continuum.”

Just a few months later, the Philips/MIT team announced that one of the first areas it would tackle was the management of brain injuries. Researchers would look at using Philips’ ultrasound technology in conjunction with MIT physiological modeling as a less invasive way to measure intracranial pressure (ICP).

“The current invasive method of measuring ICP is used only in the sickest patients, but knowledge of ICP is potentially important in a much broader population,” said Thomas Heldt, the Hermann L.F. von Helmholtz Career Development Professor at MIT’s Institute for Medical Engineering & Science, and assistant professor in MIT’s Department of Electrical Engineering and Computer Science, who is principal investigator of the study. “Our goal is to develop a noninvasive method of measuring ICP that could be used in treating a much wider range of conditions. This project gives us an opportunity to test innovative hardware and modeling techniques at the bedside in real time.”

Digital Innovation

Reflecting industry-wide trends that see digital healthcare gaining significant momentum, Philips debuted its app-based ultrasound solution, Lumify. This technology provides high-quality imaging to a smart device via a subscription model. It is intended for use by emergency departments, urgent care centers, and other clinical settings. Cloud-enabled, the technology offers users easy and convenient access to diagnostic images essentially anywhere they are able to be connected to the internet.

Information is also available via Philips’ HealthSuite Digital Platform, another cloud-enabled platform that offers users data and analytics in the hope of improving patient care. Collaborating with Amazon Web Services, this digital offering connects with a variety of devices to enable healthcare professionals to enhance their access to critical patient information.

“Ultrasound’s versatility, portability, and safety enabled it to become one of the most widely used first-line diagnostic tools. With the advent of app-based ultrasound, we strive to bring the value and benefits of ultrasound to more places across the health continuum,” said Vitor Rocha, CEO of Ultrasound, for Philips. “App-based ultrasound provides valuable information to the right people at the right time. It’s designed to drive transformation in care delivery and digital health—a dynamic combination that can extend the reach of ultrasound in a remarkable way.”

$11.2 Billion
NO. OF EMPLOYEES: 37,065

Difficult. That’s the word Frans van Houten, CEO of Royal Philips Electronics N.V, used to describe fiscal 2014. The Dutch multinational is the picture of a firm in transition—an evolution that’s been taking place for nearly four years. The company’s multi-year change and performance program is called “Accelerate!” and was launched in the second half of 2011 in an effort to “realize the value potential” of Philips and to speed growth.

In the latter half of FY14, Accelerate! kicked into serious overdrive with a plan to completely reshape the structure of the Philips organization. In September, company leadership unveiled plans to split the diverse multinational into two parts. Following a series of consecutive profit warnings, Philips officials said they would merge the company’s healthcare and consumer electronics divisions into a single company. The company’s leadership also planned to spin off the firm’s 123-year-old lighting business—either in an initial public offering as early as 2016 or possibly sold to investors, the company’s CEO said.  Van Houten announced the plans on the same day the company issued its second profit warning in less than three months. Operating profit for the second half of 2014 fell below the level of 2013, according to the company.

“Philips is uniquely positioned to help reshape and optimize population health management by leveraging big data and delivering care across the health continuum, from healthy living and prevention to diagnosis, minimally invasive treatment, recovery and home care,” van Houten said in a statement. “The combination of our Healthcare and Consumer Lifestyle portfolios and the integration of the data from the connected products on Philips’ cloud-based digital health platform illustrate our opportunity to capture growth in an increasingly connected world, where societies are looking for more effective and lower cost health solutions.”

Philips claims that its HealthTech businesses already have leading positions in oral healthcare, healthcare informatics, ultrasound diagnostics, cardiac care and home healthcare. Officials have blamed problems at a medical imaging facility in Cleveland, Ohio, which was shut down following an inspection by the U.S. Food and Drug Administration (FDA). China’s sluggish economy also was blamed for sluggish performance.

Philips was founded in 1891 with a focus on lighting. Over the past decade, however, it has refocused on more profitable activities such as healthcare, while selling its chip-making and TV businesses. (Company trivia: Philips invented the audio cassette and compact disc.)

Van Houten said Philips has been facing the same challenges as other corporate giants that have been slow to adapt to a new world. The split means Philips will focus on its healthcare division, which leadership clearly has identified as the company’s best growth opportunity for the near future. He said the split would create two “market-leading businesses” in healthcare and lighting. Both businesses will continue to operate under the Philips brand and will be based in the Netherlands, he added. The split would generate a total of 300 million euros in cost-savings in 2015 and 2016, but it could result in job losses, officials said.

Deals to Reshape

In a high-profile deal designed to add value to the company’s healthcare business, Philips announced plans in December last year to acquire Volcano Corp. for $1.2 billion. Volcano made catheter-based imaging and measurement solutions for cardiovascular uses. The acquisition—for $18 per share—was a move to boost Philips’ image-guided therapy business. The purchase price was a 57 percent premium compared to Volcano’s closing price the day before the deal was announced. Within the last few years, Philips has created an image-guided therapy business through strategic investments in R&D, partnerships and technology licenses.

Philips officials claim that one out of every three interventional X-ray systems sold globally is one of its systems, which provide visual maps that allow the clinician to guide thin catheters through the body and perform the minimally invasive treatment. In image-guided treatments of the heart and blood vessels, there is an increasing trend to use advanced catheters that are capable of producing ultrasound images of the interior of blood vessels (intravascular ultrasound or IVUS) or perform blood flow measurements (fractional flow reserve or FFR), with which Volcano had a strong market position. There is a growing body of clinical evidence that the use of such technologies in conjunction with interventional X-ray helps improve procedural outcomes.

According to executives from Philips, the combination of the companies would create new sources of recurring revenue streams and increase sales growth for Philips in the approximately $5 billion image-guided therapy market. Sales growth will be accelerated through Volcano’s close customer relationships associated with its disposable products and channel synergies that will create cross-selling opportunities between both companies’ existing customer bases, officials said. In addition, the combination of Volcano’s proven clinical development and commercialization capabilities with Philips’ next generation of imaging and measurement technologies will allow Philips to introduce new solutions in higher-growth segments such as the minimally invasive treatment of heart rhythm disorders and structural heart diseases.

“The agreement to acquire Volcano significantly advances our strategy to become the leading systems integrator in image-guided therapies,” said van Houten. “Volcano’s impressive and unique product portfolio is highly complementary to our strong offering in live image-guidance solutions, creating an opportunity to accelerate the revenue growth for our image-guided therapy business to a high single-digit rate by 2017. Our combined sales forces will be able to capture immediate cross selling opportunities, while our joint R&D teams will be able to develop new solutions to address significant unmet needs in the minimally invasive treatment of cardiovascular diseases.”

Van Houten added: “Image-guided therapies provide significant benefits for healthcare systems and patients, including reduced patient trauma, shorter recovery times and hospital stays, and lower costs. As a result, our clinical partners and customers are asking for a tighter integration of imaging and measurement technologies to enable such therapies. This transaction allows us to provide our customers with an integrated solution to improve procedural outcomes at a decisive stage in the health continuum.”

Once the transaction was completed in February, the Volcano business and its 1,800 employees became part of the new image-guided therapy business group within Philips, which is led by Philips executive Bert van Meurs. Volcano generated sales of $400 million in 2014.

In November, Zoll Medical Corp., bought the InnerCool temperature management business from Philips Healthcare. The purchase included catheter-based endovascular and surface temperature management technologies designed to improve outcomes for patients with a variety of temperature management-related needs. Terms of the deal were not disclosed.

InnerCool was integrated into Zoll’s Temperature Management business in San Jose, Calif. Philips and Zoll haven’t always played so well together. In fact, the companies have battled in court in recent years over patents involving automated external defibrillator technology. Chelmsford, Mass.-based Zoll Medical makes products for defibrillation and monitoring, circulation and CPR feedback, data management, fluid resuscitation, and therapeutic temperature management.

Leadership Shakeup

During the summer of 2014, Deborah DiSanzo, the head of Philips Healthcare, stepped down and van Houten took control of Healthcare. A spokesman for Philips said the company changed horses because its operations weren’t adapting quickly enough to changing market demands. In a statement at the time, Van Houten said the move was an example of how the company took “decisive action to improve our performance and competitiveness, and demonstrates our relentless commitment to quality and meaningful innovation that meet the needs of our customers.”

Earlier in the year, in February, Philips appointed a new North American leader. The company named Brent Shafer as CEO of Philips North America, the company’s single largest market. He succeeded Greg Sebasky, who retired from Philips. Shafer is no stranger to the company, having served as chief executive of Philips’ Home Healthcare Solutions business group. Shafer became CEO of Home Healthcare Solutions, Philips Healthcare, in May 2010. He previously served as CEO of the North America region for Royal Philips Electronics, and as president/CEO of the Healthcare Sales and Service business for Philips North America. Prior to joining Philips, Shafer was vice president and general manager of the Patient Care Environment Division for Hill-Rom Company Inc. He also has worked at GE Medical Systems, where he held key positions in sales, marketing and general management. In addition, Shafer has worked for Hewlett-Packard’s Medical Products Group, Johnson & Johnson, and Intermountain Healthcare Primary Children’s Hospital. Shafer earned a bachelor’s degree in communications and completed additional graduate studies in business and marketing communications at the University of Utah.

Lingering Litigation

In October, Philips suffered a significant legal setback. The company was fined $466 million for infringing upon rival Masimo Corp.’s pulse oximeter technology. At the time of the verdict, it was the third-largest 2014 legal judgment in the United States. In the field of patent law, a key requirement is that the invention be non-obvious before a patent can be awarded. Basically, this means the invention must be an unexpected advance or innovation. Historically, patents have been awarded by mistake when, in fact, they were obvious and should not have been awarded in the first place. These inappropriately awarded patents can be challenged in court and, if the challenge is successful, they can be eliminated. This was the argument made unsuccessfully by Philips in U.S. District Court, District of Delaware (Wilmington), according to a Bloomberg article. “Philips agrees that it infringed,” U.S. District Judge Leonard P. Stark said in court papers cited in the Bloomberg article. “The company claimed the patents are invalid because they weren’t properly written and the technology is obvious.” Masimo filed suit against Philips in 2009 contending Philips was importing pulse oximeters that infringed on its patent. Originally, Masimo asked for $650 million in damages, a number the jury amended to $466 million, according to Bloomberg. Philips appealed the verdict.

Sluggish Numbers

“Healthcare was down overall, mainly caused by operational issues and soft markets,” said van Houten. “We were encouraged by market share gains in image-guided therapy and recorded strong orders in Europe and the Middle East, where we signed four multi-year solution deals. Our Cleveland factory resumed shipments to customers in January [of 2015], marking an important milestone.”

In January 2014, the company voluntarily suspended production at its Cleveland facility, primarily to fix and strengthen manufacturing process controls following areas identified during an ongoing FDA inspection. The agency had targeted areas for improvement following months of inspection.

“The updated quality management system at our Cleveland facility recently passed the third-party audit and we have now resumed shipments of our Brilliance iCT systems,” van Houten said. “Due to the slower than anticipated ramp-up of production and shipments, the impact on 2014 EBITA (earnings before interest, taxes and amortization) was larger than previously anticipated.

Passing the third-party audit for the production of the Brilliance iCT systems is an important milestone that enables us to focus on building further momentum as we deliver imaging innovations to our customers. We are also ramping up the production of computed tomography (CT) systems in our facilities in Haifa (Israel) and Suzhou (China), initially for customers outside of the United States. Our remediation work will continue to weigh on 2015 and we expect our global CT system production and shipment volume to only gradually return to 2013 levels by the end of the year.”

Sales for Philips Healthcare in fiscal 2014 (ended Dec. 31) were 9.19 billion euros ($11.17 billion), down 2 percent compared to fiscal 2013. EBITA of 616 million euros (6.7 percent of sales, $748 million) was down compared to 1.51 billion euros (15.8 percent of sales) in fiscal 2013. Restructuring and acquisition-related charges amounted to 70 million euros, compared with close to zero in 2013. EBITA included charges of 366 million euros related to the jury verdict in the Masimo litigation, 49 million euros of inventory write-downs mainly related to the Cleveland facility, and a 16 million euro past-service pension cost gain in the Netherlands. For the company overall, sales dropped from 21.4 billion euros ($26 billion) from 21.9 billion euros in fiscal 2013. Net income was 411 million euros ($499 million) in 2014 compared to 1.17 billion euros in 2013.

The United States is Philips Healthcare’s largest market at 40 percent of the unit’s sales, followed by China, Japan and Germany. Emerging markets accounted for 25 percent of healthcare sales.

In 2014, the business was organized around four strategic business groups: Healthcare Informatics, Solutions and Services (imaging informatics, healthcare IT, electronic medical records); Imaging Systems (computed tomography, magnetic resonance imaging, molecular imaging, diagnostic X-ray, and mammography); Patient Care and Monitoring Systems (patient monitoring and analytics, mother and child care, temperature management, anesthesia care, hospital repository care systems and ventilation, sleep management, respiratory care and noninvasive ventilation); and Customer Services (clinical support and performance services, proactive monitoring, product support). Imaging systems accounted for 35 percent of Healthcare division sales. Patient Care & Monitoring Solutions were 32 percent of sales. Healthcare Informatics, Solutions & Services made up 6 percent of sales, while Customer Services accounted for 27 percent of sales.

So far for 2015, Philips Healthcare has made modest sales gains. The company posted 2.26 billion euros ($2.45 billion) in sales for the first quarter (ended March 31), up 1 percent from 2014. The company credited mid-single-digit gains in Imaging Systems and Customer Services for the improvement.

$13.18 Billion ($32.1 B total)
NO. OF EMPLOYEES: 37,008 (116,681 total)

Relevance is one of Frans van Houten’s favorite words. Not surprisingly, the term has played a central role in the chief executive’s transformation plans for Royal Philips, the Dutch electronics multinational that invented the audio cassette, VCR and CD medium. It also was a leader in DVD and Blue-Ray technology, and at one time, was a formidable player in televisions.

But by the middle of the last decade, Philips’ television business was losing its battle with cheaper competition from Asian firms like Samsung Electronics and LG Electronics. In 2007, the company’s TV division began operating at a loss that quickly ballooned to 436 million euros ($601.2 million) the following year.

Shortly after becoming CEO in April 2011, van Houten visited France and found a team demoralized by the limited shelf space being reserved for the company’s struggling consumer electronics business. “We did a store visit and the store managers said, ‘Well of course Philips gets less and less shelf space. Why can’t you do something that we want?’ he recalled in an interview with Reuters late last fall. “The word relevance was triggered by those discussions.”

Perhaps a more important word triggered by that discussion was “Accelerate!”—van Houten’s blueprint to increase his company’s relevancy in the marketplace. The multi-year program is designed to create a more “agile and entrepreneurial” organization with a greater presence in fast-growth emerging economies, a larger slice of the business-to-business market (only in relevant areas, of course), a leaner inventory and a fatter innovation pipeline.

Since launching Accelerate! in late 2011, van Houten has made his company more relevant by licensing off its mainstay lifestyle entertainment business (audio, video and media accessories) to focus on healthcare, energy-efficient lighting and consumer lifestyle products. He’s also earmarked more money for research and development to encourage innovation, and he’s cut layers of management to increase efficiency and reduce organizational complexity.

Accelerate! is more than a fat-trimming tool, however. It has become a way to expedite operational excellence and quickly deliver innovation to the market through a combination of local efforts and global platforms. In Africa for instance, where childbirth mortality hovers at 6 percent, Philips has created ultrasound screening centers in rural areas that are electronically linked to cities for diagnostic interpretation of images and doctors’ telephoned advice. Such integration of healthcare products with IT and telecommunications services is known as the “end-to-end” way of working, where global innovation and local entrepreneurial market teams work together to crack the healthcare code.

Accelerate! promoted a similar approach to innovation within the company, whereby regional offices have the flexibility to act like startups but also leverage the vast capabilities of a global player.

In accordance with its Accelerate! program, Philips executives built in a series of mid-term performance goals for 2013 that included a 4-6 percent comparable sales growth Compound Annual Growth Rate, assuming real gross domestic product growth of 3-4 percent annually; a 12-14 percent return on invested capital; and reported EBITA (earnings before interest, taxes and amortization) margins of 10-12 percent company-wide, 15-17 percent in Healthcare, and 8-10 percent in both Lighting and Consumer Lifestyle (excluding unrelated licenses).

Although economic headwinds still swirled strongly in the United States and Europe, the company achieved those goals last year, posting a 4.5 percent comparable sales growth rate, a 15.3 percent return on invested capital, and reported EBITA margins of 10.5 percent company-wide, and 15.8 percent in Healthcare. “Our Accelerate! initiatives helped us to achieve our mid-term 2013 targets,” van Houten told shareholders in the company’s 2013 annual report. “I am delighted with this result, as it underlines yet again that Philips is, above all, a case of self-help. The significant changes we have made to our portfolio in recent years have created a better growth platform with higher profit potential. And with the transformation of our business model architecture, we are increasingly becoming a technology solutions partner, with recurring revenue streams accounting for over 25 percent of sales.”

Many of those recurring revenue streams originated in the Healthcare division, where 2013 revenues remained flat at $13.18 billion (9.57 euros), but rose 1 percent on a comparable basis, according to data from the annual report. EBITA surged 28.3 percent, going from $1.6 billion (1.22 billion euros), or 12.3 percent of sales in 2012, to $2 billion (1.52 billion euros), or 15.8 percent of sales last year. The gain transcended the Healthcare division’s four business units and resulted from both higher sales and reduced expenses. (Editor’s note: Percentages reflect changes based on the local currency in which the financials were reported—in this case, the euro—and do not take into account annual foreign currency exchange fluctuations. Dollar amounts were converted using the exchange rate on the final day of the reporting period.).

Healthcare remained the top-grossing division in Philips last year, comprising more than one-third of the 123-year-old company’s $32.1 billion (23.3 billion euros) sales total. But profits stagnated, as the company grappled with a litany of setbacks, including a 2 percent decline in healthcare construction; currency volatility in Turkey, Argentina, Indonesia and other emerging markets; weak demand for healthcare equipment; and political unrest in the Middle East and Russia.

Lingering austerity measures in Europe and North America didn’t help matters either. Executives, in fact, claim both regions helped depreciate comparable sales by 1 percent. Revenues in other mature geographies, by contrast, experienced a high single-digit increase, while double-digit growth in China and Latin America counteracted sales declines in Russia and Central Asia,  the annual report indicates.

Philips’ healthcare funk clearly was evident in the division’s four business units, too: The higher comparable sales (a miniscule increase at best) were driven by mid-single-digit growth in Customer Services, which encompasses consultancy, site planning and project management, clinical services, Ambient Experience, and equipment maintenance and repair. The low single-digit growth in Home Healthcare Solutions  and Patient Care & Clinical Informatics, by contrast, partly offset a mid-single-digit dropoff in Imaging Systems (X-rays, computed tomography, magnetic resonance, nuclear medicine and ultrasound equipment, and women’s health).

As in past years, Imaging Systems generated the most revenue in 2013 (year ended Dec. 31), constituting 38 percent of the Healthcare division’s total proceeds. Customer Services sales were responsible for 26 percent of total revenue, while Patient Care & Clinical Informatics (perinatal care, therapeutic care, hospital respiratory systems, and ventilation) and Home Healthcare Solutions (sleep management and respiratory care, medical alert services, remote cardiac services, and remote patient management) brought up the rear with 22 percent and 14 percent of total sales, respectively.

Customer Services drivers likely included the breakthrough agreement Philips signed in late June 2013 with Georgia Regents Medical Center, a non-profit academic health center affiliated with the Georgia Regents Health System and Georgia Regents University.

Philips touted the collaboration last year as a “first-of-its-kind delivery model” in the United States. Under terms of the $300 million deal, Philips will provide consulting services, planning and maintenance services with pre-determined monthly operational costs over a 15-year term. It also will provide products ranging from advanced X-ray and computed tomography (CT) scanners to overhead lights and televisions in patient rooms at the Medical Center and its numerous clinics.

The deal is expected to save the Regents Health System at least $10 million annually over the agreement’s entire lifetime.
“By collaborating with Philips, we’re bringing all the stakeholders together at the same table to better assess and plan healthcare for tomorrow. It’s no longer a simple supply-and-demand business model,” David S. Hefner, the Georgia Regents Medical Center CEO, said when the agreement was announced. “Our goal is to foster an atmosphere of meaningful innovation that will have a significant and positive impact on the health of our patients.”

Home Healthcare Solutions positively impacted patients with the 2013 commercial release of a minimal contact nasal mask for sleep apnea patients. Philips executives described the Wisp device as a departure from traditional masks; the product is designed to fit more than 98 percent of sleep apnea patients. It has minimal headgear (no forehead pad and minimal parts) and features quick release tabs, headgear clips, reversible fabric (soft suedette and silky screen or clear silicone), a patented auto seal groove and three interchangeable cushion sizes within the same frame.

The Home Healthcare unit also unveiled several cardiovascular health monitoring products last year, including the Corindus CorPath 200 System (a robotic-assisted way of moving cardiac guidewires and balloon/stent catheters), the Philips IntelliSpace ECG and Philips ST80i Stress Testing System.

The IntelliSpace ECG is an advanced data management system that automates the processing, storage and distribution of electrocardiography, Holter and stress data acquired from various sources within hospitals. IntelliSpace provides the software tools to analyze, view, edit and compare ECG records as well as generate, manage and distribute reports in various formats to meet specific needs. The Philips ST80i Stress Testing System features a wireless patient experience, bi-directional connectivity and advanced decision support tools that enhance data review, patient care and workflow efficiency, according to the company.

Imaging Systems fortified its offerings with a slew of new products as well, the most notable of which was the EPIQ ultrasound system that substantially improves image quality by increasing penetration 76 percent and raising temporal resolution (the ability to maintain high resolution at high frame rates) 213 percent. The platform was among the dozen or so of the Healthcare division’s Green Product portfolio debuts last year—executives claim the EPIQ reduces both energy consumption and product weight by nearly 30 percent over older models.

Other product launches within the Imaging Systems unit in 2013 included the Vereos digital PET/CT system, which features a two-fold increase in resolution, thereby leading to higher image quality and better diagnostics, treatment planning and workflows; the IQon system, the first spectral detector CT that uses color to enable a more definitive diagnosis in a single scan; and the EchoNavigator, a live image-guidance tool that provides interventional cardiologists and cardiac surgeons an integrated view of live X-ray and 3-D ultrasound images.

“We have learned that ideally two live imaging technologies are needed to guide catheter-based repairs to the heart and a multidisciplinary team is needed to perform it,” said Professor Roberto Corti, M.D., an interventional cardiologist at University Hospital Zurich in Switzerland. “This adds to the complexity of such procedures. The development of a more sophisticated imaging technology such as EchoNavigator will definitely provide us with a better understanding of the complex structures of the heart and their repair.”

Additional supplements to the Imaging Systems portfolio were the AlluraClarity live image guidance system, the Pinnacle3 Proton treatment planning system, the MicroDose SI system, and the Spectral Breast Density Measurement Application for its MicroDose SI full-field digital mammography system.

The latter product is the first spectral breast density measurement tool that can differentiate between fat and glandular tissue to accurately measure volumetric breast density. The Spectral Breast Density Measurement Application works by independently measuring the glandularity and thickness in each pixel of an image to objectively calculate the total volume and volumetric percentage of glandular breast tissue. Once the calculations are completed, the examination is automatically assigned a MicroDose density score that correlates to the Breast Imaging-Reporting and Data System, a manual method for determining breast density. The measurement is displayed on the review workstation together in the DICOM tag of the acquired image and exported for display in a DICOM structured report.

The application of non-contrast spectral imaging uses photon counting technology, which sorts photons into low- or high-energy categories, eliminating the need for two exposures. This enables the use of spectral imaging within the routine mammogram.

“Philips believes that spectral imaging technology will be important in helping clinicians to assess breast density and provide personalized care to women,” said Lakshmi Gudapakkam, senior vice president and general manager of Diagnostic X-ray and Mammography Solutions at Philips Healthcare. “With the MicroDose SI, Philips contributes to breast cancer screening by delivering the same low dose, high image quality and ergonomics it already offers, while supplying clinicians with spectral-ready technology.”

6. Philips Healthcare
$11.4 Billion ($29.2B total)

KEY EXECUTIVES:
Frans van Houten, President & CEO
Ron Wirahadiraksa, Exec. VP & Chief Financial Officer
Jim Andrew, Exec. VP & Chief Strategy and Innovation Officer
Deborah DiSanzo, CEO, Philips Healthcare
Ronald de Jong, Exec. VP & Chief Market Leader
Patrick Kung, Exec. VP & CEO, Philips Greater China

NO. OF EMPLOYEES: 37,955 (125,241)

GLOBAL HEADQUARTERS: Amsterdam, Netherlands

Royal Philips Electronics N.V. has always managed to stay in step with the pace of innovation. The Dutch company was the first to develop a commercial X-ray diffractometer (an instrument that analyzes material structure), and it introduced consumers to such electronic marvels as the compact audio cassette tape (1963), a combination portable radio/cassette recorder (marketed as a “radiorecorder” but now better known as the boom box), a home video cassette recorder (1972), and, together with Sony, the compact disc (1982), a format that eventually evolved into the DVD and later, Blu-ray.

Over the last several decades, Philips grew into a global design powerhouse, becoming one of the most coveted places for young engineers to work. Last year, the multinational firm celebrated a record-breaking number of international design awards, prompting Fortune magazine to compare the company’s design prowess to both Apple and BMW.

Despite such ingenuity, however, Philips has lost some of its competitive edge in recent years. The global recession and ongoing European sovereign debt crisis is partly to blame for the setback—its lighting and healthcare divisions particularly have struggled as worldwide construction slowed and both consumers and governments have cut back on spending—but Philips also has conceded market share to rivals with more innovative ideas.

To help the 120-year-old company regain its past dominance across the globe, Philips executives launched a performance and change management program last year called “Accelerate!”

“With lack of consistent growth in recent years and lean, agile new competitors winning over customers, it was clear that we urgently needed to speed up in order to improve our performance and competitiveness,” President/CEO Frans van Houten wrote in a letter to shareholders in the company’s 2011 annual report. “To this end…we launched our Accelerate! program—the first step on our journey to unlock our full potential and seed the ground for our future success. Accelerate! aims to significantly boost profitable growth by stepping up meaningful innovation and competitiveness, expanding margins, driving productivity and reducing complexity and working capital.

“It is designed to ensure that we empower and strengthen our customer-facing teams to win profitable market share, that we reduce complexity costs and deliver our innovations faster and more efficiently along the end-to-end chain to the customer, that we drive performance with transparency and accountability for granular business/market plans,” van Houten’s letter continued. “And that we carry through our strategies with the resources and determination to win our critical market battles and achieve leadership in our chosen markets.”

In accordance with its Accelerate! program, Philips executives announced a series of performance goals to be realized by the end of next year. Those goals included comparable sales growth (compound annual growth rate) of 4-6 percent, assuming real gross domestic product growth of 3-4 percent; a 12-14 percent return on invested capital; reported EBITA (earnings before interest, taxes and amortization) margins of 10-12 percent companywide, 15-17 percent for the Healthcare division, and 8-10 percent for both the Lighting unit and the Consumer Lifestyle division (excluding unrelated licenses).

The Healthcare unit is well within reach of its goal. Data from the annual report show the division achieved an EBITA of 12.9 percent for the year ended Dec. 31, 2011, a 0.9 percent slip from the 13.8 percent recorded in 2010 but more than 2 percentage points higher than 2009’s EBITA. (Editor’s note: Percentages reflect changes based on the local currency in which the financials were reported—in this case, the Euro—and do not take into account annual foreign currency exchange fluctuations. Dollar amounts were converted using the exchange rate on the last day of the reporting period.)

Healthcare was the top-grossing division for Philips last year, comprising more than one-third of the company’s $29.2 billion (22.5 billion euros) in sales. Healthcare revenue has leveled off over the last three years, though, rising minimally from $11.2 billion (7.8 billion euros) in 2009 to $11.4 billion (8.8 billion euros) in 2011. Sales rose 0.8 percent compared with 2010, though t he increase is larger (3 percent) when measured in euros.

Executives attributed last year’s sales increase (regardless of the euro-dollar discrepancy) to higher sales in the Healthcare division’s four business units: Imaging Systems, which includes X-rays, computed tomography (CT), magnetic resonance (MR), nuclear medicine and ultrasound imaging equipment, and women’s health; Patient Care & Clinical Informatics, which comprises perinatal care, therapeutic care, hospital respiratory systems, and ventilation; Home Healthcare Solutions, which encompasses sleep management and respiratory care, medical alert services, remote cardiac services, and remote patient management; and Customer Services, which includes consultancy, site planning and project management, clinical services, Ambient Experience, and equipment maintenance and repair.

Imaging Systems generated the most revenue last year, constituting 39 percent of the Healthcare division’s total sales. Customer Services sales were responsible for 25 percent of total revenue, while Patient Care & Clinical Informatics and Home Healthcare Solutions brought up the rear with 22 percent and 14 percent of total sales, respectively.

Imaging Systems sales drivers included the Ingenuity TF PET/MR, the first new imaging modality introduced in a decade. The system, according to Philips, integrates the molecular imaging capabilities of positron emission tomography (PET) with the soft tissue contrast of MR, enabling the system to perform both standalone MR and hybrid PET/MR studies. This dual capability eliminates the need for multiple scanners, reduces throughput time and improves patient comfort (those undergoing the tests can remain on the same table for both scans).

Besides the PET/MR device, Philips also released a new Ingenuity CT platform last fall that provides low dose and high image quality. The Ingenia MR made its debut as well—company executives described that device as the “first digital broadband MR system” to deliver superior image quality and increase patient throughput by up to 30 percent.

Philips’ Ambient Experience continued to infiltrate the globe in 2011, particularly in emerging growth pockets like the Middle East. The total number of locations with this Experience is close to 300, the company estimates.

The Ambient Experience takes patients on a multimedia ride, allowing them to personalize the lighting, projected images, and sounds in the examination or lab room. Themes are selected on a wireless touch-screen tablet and projected on both walls and ceilings and through TV screens, wrapping the user in a multi-sensory setting of his or her own choosing.

The company’s female health portfolio received a significant boost with last summer’s $100 million acquisition of Sectra AB’s digital mammography business. The deal landed Philips basically all of Sectra Mamea AB, which reported roughly $20 million in sales in 2010. The purchase, however, did not include the Swedish firm’s other female health products such as mammography PACS or RIS software.

The Sectra deal is expected to help Philips markedly expand its breast care portfolio. Currently, the company’s digital mammography unit, the MammoDiagnost DR, is available only in Europe.

Other significant 2011 acquisitions include the purchase of Dameca, a Danish provider of anesthesia machines and operating room accessories, and a partnership with Natick, Mass.-based Corindus Inc. to jointly develop robotic-assisted systems for minimally invasive treatment of obstructed coronary arteries.

The Dameca purchase broadens Philips’ anesthesia product portfolio, executives said, adding anesthesia machines, wall panels, pendant systems, flow meters, suction units and other accessories to the company’s current lineup.

Philips’ Patient Care & Clinical Informatics unit introduced a number of clinical decision support algorithms, telehealth applications, workflow tools and other innovative systems last year that most likely will contribute to increased sales in 2012. Included in the class of newcomers were the IntelliVue MX600, MX700 and MX800 patient monitors, which give clinicians an expanded, real-time view of patients’ vital signs and a wealth of clinically relevant information from a hospital’s intranet and applications, all on a single screen. Each device combines a highly configurable, widely scalable bedside patient monitor with an optional built-in personal computer. The monitor and PC operate concurrently and independently.

Another standout was the IntelliVue MX40 monitor, recognized as the best new product at the 2011 Military Smart Monitoring Summit. The wearable device, designed specifically for ambulatory patients, features a color touchscreen display that enables nurses and other healthcare providers to check patients’ clinical status with the push of a button. The monitor also displays two channels of real-time waveforms, offers four different screen formats and has alarm settings, patient histories and vital trends built into its operating system, according to Philips.

The monitors, however, were not the only breakthrough products introduced by the Patient Care & Clinical Informatics division in 2011. The unit also pioneered telehealth applications to address customers’ need to improve financial and clinical outcomes. Sisters of Mercy Health System in St. Louis, Mo., for instance, expanded its use of the Philips eICU telehealth program across four states and eight hospitals to support stroke victims with timely access to scarce stroke neurologists. The Sisters of Mercy planned to extend its use of the eICU program to 24 hospitals by the summer of 2012.

Philips’ Home Healthcare Solutions division experienced a productive year as well. The unit introduced its medical alert service Lifeline Auto Alert to Japan to expand the company’s presence in one of the world’s most rapidly aging markets. Customized to the needs of Japanese patients and developed in close collaboration with Japanese hospitals, the Lifeline service offers seniors an easy-to-use personal response service that enables them to summon emergency help 24/7.

The company also invested considerably in emerging markets last year. Philips introduced Chest Pain Centers in China to help cardiologists better manage acute cardiovascular events, while the first imaging systems rolled off an assembly line at the company’s Suzhou, China, facility. In addition, Philips expanded its value segment assets in Interventional X-ray Systems by setting up a greenfield healthcare research and development/manufacturing plant in Pune, India.

“We are still in the early stages of a multi-year transformation of our company,” van Houten told shareholders. “Accelerate! will drive granular execution of our plans and enable the necessary investments in innovation, people, systems, and markets to deliver profitable growth and return on invested capital. And we will reap the benefits of our new culture of entrepreneurship and accountability, and commitment to business excellence.

$11.4 Billion ($33.7B total)
NO. OF EMPLOYEES: 35,479 (121,398)

“Sense and simplicity.”That’s the motto for Royal Philips Electronics N.V. It reflects an approach to business and the products the company manufactures. But when it comes to today’s business climate, well, we all know that sometimes finding year-over-year growth doesn’t always make sense and it usually isn’t simple—especially when you’re manufacturing mainstream consumer goods such as televisions and other household electronics. Over the past few years, Philips consumer business has taken a hit due to limited spending during the “Great Recession.”

But, as Philips’ management has been quick to point out, fiscal 2010 (which ended for the company on Dec. 31) was much better than 2009—in large part to the strength of its healthcare products such as ultrasound and home health.

Healthcare sales amounted to approximately $11.4 billion, which was 4 percent higher (in euros) than 2009. In 2009, sales dropped 2.7 percent. North America was the largest chunk of revenue at about $5.2 billion, followed by Western Europe at $2.7 billion. Earnings (excluding interest, taxes, depreciation, and amortization) were approximately $1.6 billion, up about 40 percent (again, in euros) compared with 2009. For the company overall, full-year sales rebounded strongly in the first half of the year and finished 2010 at approximately $33.7 billion, a 10 percent increase compared with 2009.

It was the year of “imaging” for Philips Healthcare. In 2010, the company unveiled a new approach to clinical collaboration that management said would “drive innovation and efficiency in radiology.” They call it Imaging 2.0. Executives are calling it “smarter collaboration through advanced technology,” and say it is designed to address one of the main problems in healthcare today—more consumers demanding quality healthcare, yet there is less money to treat them.

“Just as Web 2.0 redefined the way people connect, share and use the Internet, Imaging 2.0 represents a new world of possibilities for radiology science. It is about integration and collaboration, and new levels of patient focus and safety that can help clinicians achieve what was unimaginable just a few short years ago,” said Gene Saragnese, general manager of Imaging Systems for Philips Healthcare. “The radiologist can now integrate information from various sources to make a confident diagnosis and discuss it with all the clinical partners on the case—putting the radiologist at the center of clinical decision-making. This kind of collaboration and integration combined with major advancements in patient safety and comfort, all packaged to provide an excellent economic advantage for the radiologist, has triggered the next revolution in imaging: Imaging 2.0.”

The introduction of Imaging 2.0 coincided with a number of new product introductions in radiology. This year, Philips introduced the Ingenuity CT platform, which is designed to provide equivalent diagnostic image quality at up to 80 percent less dose. This advanced technology also has been incorporated into a new hybrid imaging system, the Ingenuity PET/CT, used to conduct studies in oncology imaging, cardiac perfusion and diagnostic CT.

Other innovations in imaging included:

• Ingenia MR, which is, according to the company, the first digital broadband magnetic resonance (MR) system that improves image quality while shortening MR exam times by up to 30 percent;

• Ingenuity PET/MR, the first new imaging modality introduced in 10 years that integrates the molecular imaging capabilities of PET (positron emission tomography) with the superior soft tissue contrast of magnetic resonance imaging;

• IntelliSpace Portal, a new multi-modality, multivendor workstation that uses advanced networking capabilities to facilitate collaboration between radiologists and referring clinicians, no matter the vendor; and

• iU22 xMATRIX Ultrasound, a new ultrasound system that allows clinicians to capture twice as much clinical information in the same amount of time without moving, turning or rotating the transducer, helping clinicians make more informed care decisions, and potentially minimizing the frequent repetitive stress injuries experienced in the field of sonography.

Going beyond just new product development, the company is reaching out to physicians—particularly in emerging markets—not just to grow their brand, but also to reinforce disease awareness. For example, there are more than one billion people suffering from chronic respiratory diseases worldwide, according to the World Health Organization. Of this group, an estimated 210 million have Chronic Obstructive Pulmonary Disease (COPD). Three million people died from COPD in 2005, and 90 percent of those deaths were in low- and middle-income countries, where effective strategies for prevention and control are not always implemented or accessible. Philips announced plans in 2010 to train 2,000 physicians in emerging markets on respiratory disease such sleep apnea and COPD. In India, Philips recently supported the setup of sleep labs in hospitals to help diagnose sleep disorders and treat patients.

Another factor in the company’s penetration into emerging markets has come through acquisitions of companies in very specific locales globally. In 2010, Philips purchased Shanghai Apex Electronics Technology Co. Ltd. in China, which makes ultrasound transducers. Financial details of the deal were not disclosed. Philips also purchased two healthcare firms in Brazil, an informatics company called Tecso Informatica and Wheb Sistemas, a provider of clinical information systems. Terms also were not disclosed for those deals.

Philips also purchased the Somnolyzer 24×7 software business from the Vienna, Austria-based Siesta Group. The Somnolyzer system provides automated measuring and scoring polysomnography for sleep disorder centers that Philips will roll into its Home Health unit, which grew out of the purchase of Respironics Inc. in 2008. Also acquired in 2010 was Israel-based CDP Medical Ltd., which makes picture archiving and communication systems that will become part of Philips imaging business. The company’s sixth purchase was medSage Technologies, a privately held company headquartered in Pittsburgh, Pa., that has developed a novel voice and email application that home care providers can use to interact with patients. The business became part of the Sleep business within Philips Home Healthcare Solutions.

2010 also saw a changing of the old guard. The announcements were made in 2010 and took effect this year. Frans van Houten replaced Gerard Kleisterlee—who retired—as president and CEO, while Ron Wirahadiraksa, who was chief financial officer at Philips Healthcare, replaced Pierre-Jean Sivignon, who left for personal reasons. Van Houten had worked for a semiconductor division of Philips that was sold.

“I am happy to see Frans return to our company,” said Kleisterlee, “Frans was a strong member of my team and a strong contributor in setting the direction of the company. I regretted to see him leave with the semiconductor spinout. Under his leadership, Philips’ future will be in very good hands.”

The fiscal year also brought high marks for the company in manufacturing and logistics. The Dutch Association of Investors for Sustainable Development (VBDO) has, for the third time, recognized Philips’ achievements in the area of “responsible supply chain management. Philips is ranked first among the forty largest publicly listed Dutch companies benchmarked for this award. Philips scores have shown continual improvement over the last four years, increasing from 62 percent in 2006, up to 77 percent in 2007, 85 percent in 2008, 90 percent in 2009 and 93 percent in 2010.

VBDO cited Philips’ dedication to supporting suppliers in improving their sustainability performance and by embedding supplier sustainability within the company strategy, “demonstrating that sustainability is a key enabler of value creation and growth.”
Following the award, Philips executives said the company planned to increase supplier collaboration across all its product lines.

6. Philips Healthcare

$11.2 Billion ($33.2B total)

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: 34,000 (116,000)

GLOBAL HEADQUARTERS: Amsterdam, Netherlands

Much like General Electric, Royal Philips Electronics has a broad array of product categories from flat screen televisions to electric toothbrushes. But the company has made its Healthcare division a driving force behind current and future growth. In fact, Healthcare accounted for 34 percent of the company’s revenue in 2009; in 1997 it was 7 percent.

Though the company took a hit in 2009 earnings, sales from the Healthcare division helped to bolster the bottom line. Total company sales in 2009 were $33.2 billion, down 12 percent. Net income was $608 million, compared with a loss of approximately $130 million in 2008 (based on conversion rates at the time).

“2009 was all about staying focused and acting decisively. As a result of the swift action we took, the Philips of 2010 is clearly a more agile, better company than the one that went into 2009,” said Gerard Kleisterlee, President and CEO of Philips.

Over the long term, Philips Healthcare President Stephen H. Rusckowski sees “enormous opportunity” in some of the challenges being faced by global healthcare.

“We focus our business on addressing the evolving needs of the healthcare market by developing meaningful innovations that contribute to better healthcare, at lower cost, around the world,” he told shareholders in 2009.

Healthcare results for fiscal 2009 (ended Dec. 31) rose marginally. But in a financial world where flat is the new up, that could be viewed as solid performance.

Siemens breaks its products down into five categories:

• Imaging Systems (32 percent of total sales): X-ray, computed tomography, magnetic resonance and nuclear medicine imaging equipment;

• Clinical Care Systems (15 percent): ultrasound imaging,
hospital respiratory systems, cardiac care systems and children’s medical ventures;

• Home Healthcare Solutions (14 percent): sleep management and respiratory care, medical alert services, remote cardiac services and remote patient management;

• Healthcare Informatics (13 percent of sales): healthcare
informatics, patient monitoring systems and image management services; and

• Customer Services (26 percent of sales): consultancy, clinical services, education, equipment financing, asset management, and equipment maintenance and repair.
Healthcare sales across all five segments in 2009 amounted to $11.2 billion, 2 percent higher than in 2008. The company reported sales declines in Imaging Systems, Healthcare Informatics and Clinical Care Systems while Customer Service and Home Healthcare Systems grew compared with 2008.
To further strategically broaden its product lines, Philips made a few noteworthy acquisitions.

The first was 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 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 had 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 computed tomograph.

“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 Rusckowski.

The other notable buyout was InnerCool Therapies, a division of San Diego, Calif.-based Cardium Therapeutics. InnerCool manufactures therapeutic hypothermia technology. Therapeutic hypothermia solutions aim to safely induce, maintain and reverse hypothermia or maintain normal body temperature, to preserve organs such as the heart and brain in the event of sudden cardiac arrest. The purchase price was $11.25 million. According to Rusckowski, the transaction will allow Philips to expand its emergency care offerings. The company was integrated into Philips’ Clinical Care division.

The company released a number of products throughout the year, many in the home healthcare and sleep apnea/sleep therapy fields, which Siemens aggressively is pursuing.

With an estimated 80 percent of sleep apnea sufferers still undiagnosed, according to Philips, the company sees excellent opportunities to solidify market share, improve patient health and reduce the cost of healthcare.

For example, the Philips Respironics Sleep Therapy System for obstructive sleep apnea (OSA) uses advanced intelligence to deliver better care while making patient management. The new system thinks for itself and monitors patients while they sleep. It then recognizes when therapy needs change.

OSA is a condition characterized by the repeated cessation of breathing during sleep.It is caused by the blockage of the upper airway due to such factors as a large tongue, extra tissue, or decreased muscle tone to hold the airway open.Each breathing stop can last from a few seconds to minutes and may occur five to 30 times or more each hour.OSA puts a strain on the heart and, if left untreated, can increase the risk for high blood pressure, heart attack, stroke, obesity and diabetes.

$10.7 Billion ($37B total)
NO. OF EMPLOYEES: 35,550 (121,000)

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.

$9.5 Billion ($39.4B total)
NO. OF EMPLOYEES: 27,441 (118,098)

Much like some other companies on this year’s list of top companies, the medical device unit of Philips has gone through an organizational and brand transformation. Philips now calls its Medical Systems division Healthcare, which, according to the company, brings together Medical Systems and its growing Home Healthcare business—formerly Consumer Healthcare Solutions.

With this move, Philips Healthcare, headquartered in Andover, MA, wants to bridge both ends of the healthcare cycle.

“We believe the link bridging the hospital and the home is going to be increasingly important in delivering better patient outcomes while containing costs,” said CEO Gerard Kleisterlee. “Given the unsustainably high healthcare costs in many markets and increased emphasis on both efficiency and patient comfort, we are seeing a gradual shift towards diagnosing, treating and monitoring patients in their homes rather than in hospitals. Demand for home healthcare is also growing due to the increasing number of elderly people and the rising incidence of chronic diseases.”

But Philips isn’t just paying the move lip service. This year’s report about the company will read more like a laundry list of deals, as the company made a number of key acquisitions throughout the year to align operations with its new corporate vision.

Its blockbuster buyout for 2007 was the purchase of Murrysville, PA-based Respironics, a manufacturer of respiratory and sleep therapy products (covering both hospital and home health markets) for approximately $5.1 billion in cash. The deal was announced before the end of fiscal 2007 and closed in the first quarter of fiscal 2008.

“A core part of Philips’ healthcare strategy is to take a leading position in the high-growth sector of home healthcare,” said Steve Rusckowski, CEO of Philips Healthcare. “This acquisition, with its significant strategic and financial benefits to Philips Healthcare, is another important step in carrying out this strategy.”

John L. Miclot, president and CEO of Respironics, said partnering with Philips would “create additional growth opportunities for our company, and we believe that our company will benefit significantly by being part of a larger, growing and dynamic organization.”

For its 2007 fiscal year, Respironics reported sales of approximately $1.2 billion. Almost three-quarters of Respironics’ sales were achieved in the company’s Sleep and Home Respiratory business, which consists of diagnostic and therapeutic devices for sleep-disordered breathing and chronic respiratory diseases. The remainder is in the hospital setting and includes noninvasive and invasive ventilation, respiratory monitoring, neonatal products and respiratory drug-delivery technology for the treatment of respiratory diseases.

Philips also made a number of other important purchases.

In two more December deals, Philips announced a merger agreement with clinical IT and service provider VISICU, based in Baltimore, MD, and Emergin, in Boca Raton, FL—both companies add to Philips’ patient monitoring business. VISICU, purchased for $430 million, makes clinical IT systems that enable critical-care medical staff to actively monitor patients in hospital intensive care units from remote locations. The merger will boost the creation of products to give more clinical decision support to hospital staff, while allowing personnel to monitor greater numbers of critically ill patients, according to Philips. Emergin develops software that rapidly transmits medical alarm signals throughout hospitals. It had sales of approximately $18 million in 2007.

In October, Philips snatched up Windsor, CT-based Raytel Cardiac Services from SHL Telemedicine Ltd. for approximately $110 million in cash. Raytel develops home cardiac-monitoring systems that doctors prescribe to heart patients. The company will be integrated into Home Health within Philips.

In August, Philips bought El Paso, TX-based XIMIS, a healthcare IT company that focuses on systems to help reduce errors and streamline workflow in hospital radiology wards. Details of the transaction were not disclosed.

Finally, Brazil’s leading general X-ray manufacturer, VMI-Sistemas Medicos, was acquired in June. Philips plans to boost VMI’s Brazilian exports to other countries in Latin America, which currently represents approximately 5% of the newly acquired division’s business.

In a divestiture among all the acquisitions, Philips sold 70% ownership interest in MedQuist (a provider of medical transcription and clinical documentation technology and services) to CBaySystems Holdings Ltd. As the company restructured, Philips considered MedQuist a “non-core holding.”

For fiscal 2007, the Healthcare division reported $9.5 billion in total sales (based on conversion after at the end of the reporting period), a nominal increase compared with last year (0.3% in euros). Excluding the 2% positive impact of portfolio changes and the 5% unfavorable currency effect, comparable sales growth was 4%. Earnings before interest taxes and amortization (EBITA) were down approximately 1.3% to $1.3 billion. Particularly strong growth in Ultrasound and Monitoring and Customer Services partly was offset by a decline in Imaging Systems, which was negatively affected by the continued softening of the imaging market (partly due to the Deficit Reduction Act of 2005, which mandated imaging reimbursement cuts) in the United States, according to the company.

For the beginning of 2008 (as of press time, only first-quarter results were available), sales were up marginally (3% in euros), compared with the first quarter of 2007, to $2.3 billion. Higher earnings in Ultrasound, Patient Monitoring and Customer Services—mainly driven by margin improvements and cost reductions—partially were offset by lower earnings at Imaging Systems. EBITA for the quarter (ended March 31) was up 1.7% to $191 million. For full-year 2008, acquisition and integration charges related to Respironics, VISICU and Emergin are expected to negatively impact EBITA by approximately $158 million, the company estimated.

“$8.5 Billion ($35.6B Total)

Key Executives:
Gerard Kleisterlee, President, CEO and Chairman
Pierre-Jean Sivignon, Exec. VP and CFO
Rick Harwig, Chief Technology Officer
Stephen H Rusckowski, CEO, Philips Medical Systems

No. of Employees: 121,732

World Headquarters: Amsterdam, The Netherlands

For almost 100 years, Philips has been an innovator in medical care, among many other industries. Today, the multibillion-dollar company has a significant portion of diverse technology segments, including medical diagnostic imaging and patient monitoring systems, lighting solutions, personal care, home appliances and consumer electronics.

For fiscal year 2006 (ended Dec. 31), overall company sales were $35.6 billion, up from $30.4 billion in 2005. Income after taxes rose only slightly, however, to $1.4 billion. The United States is the single largest sales center for the company, generating almost $10 billion of the company’s total sales. (Editor’s Note: Figures were converted to dollars using the exchange rate on the last day of the company’s reporting period.)

The company’s Medical Systems division—based in Best, The Netherlands and Andover, MA—reported revenue of $8.5 billion, up from $7.5 billion in 2005.

Philips Medical Systems, which employs more than 31,000 personnel (19% of the Philip’s total workforce), is broken down into three businesses:

• Imaging Systems: X-ray machines, CT, MR, ultrasound and nuclear medicine imaging equipment, used to create images of various parts of the body in varied detail for radiologists and cardiologists

• Customer Services: Consultancy, equipment financing, asset management and equipment maintenance and repair

• Clinical Solutions: Healthcare IT systems as well as patient monitoring and cardiac devices

Sales growth, according to Philips, was experienced across all categories except MedQuist, the company’s medical transcription service company. Growth was strongest in the Computed Tomography and Nuclear Medicine units, each of which generated above 10% sales growth. According to the company, 53% of sales were generated by products released within the last three years.

In November, Philips Medical named Stephen Rusckowski as its new CEO, succeeding Jouko Karvinen, who had been CEO since 2002. Since 1984, Rusckowski has held numerous management positions with the healthcare division of Hewlett-Packard/Agilent Technologies. He was the general manager of Agilent’s Healthcare Solutions Group when Philips acquired the business in 2001.

“Steve has a long track record running successful growth businesses in healthcare, both at Philips and before,” said CEO Gerard Kleisterlee “We’re confident he’s the right leader for the next phase of growth and expansion at Medical Systems.”

In the 2006 annual report, company officials outlined a growth strategy in developing markets. In June this year, Philips Medical Systems took a step toward expanding its international reach by acquiring VMI-Sistemas Medicos (VMI), a diagnostic imaging company based in Minas Gerais, Brazil. No financial details on the transaction were disclosed.

“By acquiring VMI, Philips can offer customers in Brazil and across Latin America a more complete medical diagnostic imaging product portfolio. This is our first acquisition of a healthcare company in a developing economy, and it endorses the company’s global strategy of focusing on healthcare and investing in emerging markets, looking for solutions especially developed to address local needs,” said Rusckowski. According to Philips, between 2003 and 2006, growth in the Brazilian market for medical diagnostic imaging and monitoring equipment was robust, expanding at close to 20% per year, compared to annual growth rates in the global market of between 4% and 5%.

While not part of the company’s emerging market strategy, Philips announced in April it would acquire Cherry Hill, NJ-based Health Watch, a privately held provider of personal emergency response services, for approximately $130 million in cash. According to the company, this acquisition represents a further step for Philips in building its presence in the business-to-consumer healthcare market. Health Watch will add more than 100,000 US customers to Philips Lifeline’s existing base of more than a half-million subscribers in North America.

Since being acquired by Philips in the first quarter of 2006, Lifeline Systems’ sales grew in excess of 15%. Today, seniors represent around 15% of the population in the developed world, and that number is expected to almost double in size over the next 25 years. Personal emergency response services already are the largest category of home healthcare solutions purchased out of pocket by older adults and their caregivers, according to Philips.

For the first quarter of 2007, Medical Systems sales remained relatively flat, having achieved $1.94 billion, compared to $1.7 billion for the first quarter of 2006. Cardiac Care and Magnetic Resonance were the strongest sales drivers so far for the year, the company said. “

$7.5 Billion ($74B Total)
No. of Employees: 164,438

Philips has come a long way since 1918, when it released one of the first X-ray machines. In the last few years since Gerard Kleisterlee took over as CEO, the mega billion-dollar company has been moving away from relying on its electronics area and increasing its presence in healthcare.

In a little over a year the company has spent more than a couple of billion dollars on acquisitions, including Melbourne, FL-based Witt Biomedical, Brisbane, CA-based Stentor, Latham, NY-based Intermagnetics and Lifeline Systems of Framingham, MA.

“We continued to focus our portfolio, exiting low-growth, low-margin activities, reducing our financial holdings and re-allocating resources to businesses that offer better prospects for growth and higher returns,” said Kleisterlee. “For example, we further expanded our presence in healthcare, both through strong organic growth and through the acquisition of the healthcare IT company Stentor.”

But the Amsterdam, Netherlands-based business was severely hurt by the strong dollar as Philips Medical revenues dropped 6% in fiscal 2005. In Euros, the medical division jumped 8% as one of the fastest growing parts of the overall company.

The investment in gobbling up medical systems companies appears to paying off, as first-quarter 2006 revenues rose 6% to $1.8 billion. Computed tomography, ultrasound, X-ray and healthcare IT product lines drove the Medical Systems division.

In addition, the division’s earnings rebounded to $804 million after a drop in 2004 to $48 million as the company suffered from impairment charges in 2004 for losses in the courtroom.

In addition to purchasing companies, Philips was bolstered in 2005 by its growth strategy in Asia, especially in China, with its joint venture with Shenyang, China-based Neusoft Medical Systems. Philips also inked a joint venture with German pharmaceutical company Schering to develop medical equipment for the emerging optical imaging market.

The $280 million purchase of Stentor in August 2005 increased Philips’ capabilities in healthcare IT with Stentor’s PACS (Picture Archiving and Communication Systems).

In the first quarter of 2006, Philips also acquired Witt Biomedical for $165 million and Lifeline Systems for $690 million. The purchase of Witt bolsters the company’s cardio/vascular X-ray business. Witt Biomedical is a supplier of hemodynamic monitoring and clinical reporting systems used in cardiology catheterization laboratories. And Lifeline is a company that provides personal emergency response services and has annual sales of about $150 million.

The most recent acquisition came as recently as last month (June) when Philips Medical Systems bought Latham, NY-based Intermagnetics for $1.3 billion to help its molecular imaging through MRI technology.

“Through this acquisition, we will greatly strengthen the overall performance and innovation capability of our MRI business,” said Jouko Karvinen, member of the Philips Board of Management and CEO of Medical Systems. “In the short term, we expect to gain equipment market share and to grow the installed base by expanding our product offerings with an accelerated innovation rate and a lower cost supply chain. Intermagnetics’ leading positions in the high-growth and high-value markets of RF coils and MRI patient monitoring will enable us to build unique solutions for our customers.”

In 2005, Philips was hurt by the ongoing investigation by the SEC on MedQuist. Philips owns 71% of the Mt. Laurel, NJ-based manufacturer of electronic medical transcription, health information and document management products. The SEC is looking into MedQuist’s billing practices.

The company also made news with its introduction of a home defibrillator, which can be bought on Amazon.com for approximately $1,200. The move is to release user-friendly medical device products that can be used at home by consumers. Another product released last year was Motiva, which allows patients to send medical information to doctors using a box hooked up to their television set. The company also launched the HD11 XE cardiology ultrasound system.

In addition, several products received FDA approval, including the HeartStart FR2+, an automated external defibrillator (AED) that advises the user whether to provide an immediate defibrillation shock or CPR followed by a shock to a victim of sudden cardiac arrest; the HeartStart MRx monitor/defibrillator, improving delivery of CPR by medical responders; and two disposable Sp02 pulse oximetry sensors used for infant and neonatal patients.