News Feature | January 25, 2017

Philips CEO: Focus On Health Tech Pays Off, Despite Uncertainty in U.S.

By Suzanne Hodsden

philips marquee

Philips has successfully completed its transformation into a “focused leader in healthcare” with comparable sales growth of five percent in its health tech portfolio, said Philips CEO Frans van Houten. The CEO expects 2016’s consolidated three percent growth in sales to reach between 4 and 6 percent growth in 2017, despite growing uncertainty in the U.S. market and the expected repeal of the Affordable Care Act (ACA).

Philips began a restructuring move that would split the company and allow Philips to prioritize growth in high-margin healthcare products in 2014, and listed an initial public offering (IPO) for the lightning business in May of 2016. The sale of a 29 percent stake was intended to jump start health tech focus, but the company still retains 71 percent of its legacy lighting business.

“Overall, 2016 was a defining year in which we successfully executed on our major strategic initiatives in the transformation of Philips into a focused leader in health technology,” said van Houten in a press release, adding that the company delivered 3 percent comparable sales growth (CSG) and an operating cash flow of $2 billion.

Philips’ net incomes in 2016 amounted to $640 million, compared to a $39 million loss in 2015. Aging populations, rising incidence of chronic disease, and growing emphasis on value-based care and innovative solutions in the healthcare continuum all were listed as primary growth factors. Philips’ diagnosis and treatment segment, CSG, was up by 4 percent, connected care and informatics was up by 4 percent, and personal health was up by 7 percent, according to an earnings call slide show.

Philips also recently entered into four long-term strategic partnerships that emphasize the company’s solutions capabilities, including a 10-year, $79 million agreement with Russia’s Expert Group to combine advanced imaging with clinical informatics, and a 15-year partnership with Banner Health to pilot connected health solutions. In November, Philips ended patent disputes with Masimo with a $300 million partnership.

Van Houten hinted during the earnings call that there may be more partnerships on the horizon, saying “I see many more opportunities for Philips to grow by leveraging our deep clinical and consumer insights.”

Despite what van Houten called “growing uncertainty” in markets where Philips operates, he projected between four and six percent growth in 2017. In an interview with CNBC, the CEO also expressed confidence that any replacement for the ACA would adhere to similar values of controlling healthcare costs with connected solutions and increasing access to care.  Any “turbulence” that may occur, he said, will be temporary.

During the call, van Houten also disclosed details of an ongoing civil matter with the U.S. Department of Justice and the FDA concerning 2015 inspections of external defibrillators. Van Houten remarked that the discussions were not yet concluded, but “we anticipate a meaningful impact on the operations of this business.”

Van Houten disputed comparisons to a regulatory issue at a Cleveland plant in 2014, stating that the company has made several investments in recent years to “enable significant progress in this area.”