Philips announced this week that they have acquired private health care IT vendor Emergin for an undisclosed sum. From the Philips press release:
Philips Healthcare CEO, Steve Ruschowski, brags on Philips’ number one position in the patient monitoring market, and notes that the addition of Emergin will provide the means to address a long standing unmet market need – alarm notification. Sure, Ruschowski’s not that direct, he refers to, “solutions that help them access the critical patient data that our monitors provide, quickly and flexibly throughout the hospital.” Same thing.
It seems that Philips is thinking that the Emergin acquisition fills a very specific gap:
I guess that the first thing Philips will do is get premarket approval for Emergin’s software for alarm notification. It’s one thing for a small entrepreneurial software company to claim their product only provides “secondary” alarm notification, it’s another when you’re a big medical device company. Philips also realizes that alarm notification without a sample of the waveform that generated the alarm is of limited value. Displaying waveforms with the alarm appears to be the line drawn in the sand by the FDA; “secondary” alarm notification without waveforms will not be noticed, alarm notification with a waveform get you a lot of notice (just ask Cisco). Besides, Philips doesn’t want any more of these.
The quote above also hints at a mid to long term vulnerability for Philips. Patient monitoring is a sorely undifferentiated market, and numerous big and small competitors will be entering the field over the next few years. Philips has the broadest, most up to date patient monitoring product line. But Philips will need more than their shiny new patient monitors to beat this competition. Future continuation of hospitals standardizing on one patient monitoring vendor will be dependent on delivering some real enterprise value. They are way behind with the solutions required to provide an enterprise solution that the market needs, and the Emergin acquisition will go a long way to fill that gap.
Post acquisition, Philips would be crazy not to continue an independent Emergin distribution strategy. Only by actively selling Emergin’s solution, independent of patient monitoring sales, will other device vendors be compelled to maintain integration with Emergin. Think back to DataCritical. Their alarm management solution, StatView, got a lot of market traction – and a 510(k) – and was resold by GE, Philips and others. After DataCritical was acquired by GE Healthcare, vendors reselling StatView slowly evaporated.
Philips (then Hewlett-Packard) has apparently learned a lot from their Heartstream debacle. The brain drain that resulted from moving the company from McMinnville, Oregon (in the heart of the Willamette valley wine country) to the Boston suburb of Andover wrung a lot of the value out of the deal. The ATL Ultrasound acquisition was handled much better. Plans are to leave Emergin in their Florida digs. Senior management has probably signed the obligatory “we’ll stay around a few years” contracts to help ease the transition.
More important questions will revolve around distribution strategy and product strategy. You’ll note that the press release mentions Emergin’s relationship with hospital CIOs, but says nothing about the many relationships it has with other medical device vendors. Emergin acts like the Switzerland of the point of care, integrating with everyone on an equal basis. Yet cooperation between direct competitors is not done among medical device vendors. While the Philips and GEs of the world dream of hospitals dominated by single vendors, we still live in a heterogeneous market. How Philips balances the de facto proprietary end-to-end product strategy with a product like Emergin’s will determine how much value they can get from this transaction (and for how long).
For Emergin competitors this is good news. Until now, the big medical device vendors have withheld cooperation from other medical device middleware vendors like Globestar and Ascom because Emergin had the critical mass of vendor interoperability and they wanted to conserve R&D resources. Now vendors will be scrambling to secure compatible alternatives to their biggest competitor’s offering. This news should be a real plus for a more clinically oriented competitor like Cardiopulmonary whose value proposition has been reinforced by Philips’ move. Others, including Global Care Quest, LiveData, Nuvon and even Sensitron can claim a certain validation for cross vendor/cross device connectivity.
For hospitals, this is a mixed blessing. How Philiips balances the Dr. Stranglove compulsion towards proprietary systems and the open interoperability Emergin offers will tell the tale. (It’s almost too bad that a health care IT vendor like Cerner or McKesson didn’t buy Emergin.) Workflow automation at the point of care is difficult just because so many things are interrelated. Initiatives like wireless communications, meds administration, charting, alarm notification – all of these impact multiple systems, and there are no single vendor solutions. Heck, you can’t even buy vents, pumps and patient monitors from one vendor. Hospitals should walk slowly, buy when there is a clear ROI matched with a released product, and take vendor roadmaps with a grain of salt.
UPDATE: After almost 10 years (this update is being written at the beginning of 2016), let’s see what’s transpired since the acquisition.
It seems Emergin investors were looking for an exit. Hill-Rom seriously looked at Emergin before Philips, but ultimately passed; Emergin sold for a lot more (between $70-75 million) than Hill-Rom’s target acquisition price of between $10 and $15 million. At the time of the acquisition, Emergin was doing just under $20 million in annual revenue. The company was growing extraordinarily fast and struggling with hiring enough engineers to keep up with their product road map.
Here is some of the fallout from the acquisition:
- With the acquisition, Emergin was transformed from a neutral Switzerland into an industry hegemon; other medical device manufacturers, both direct competitors with Philips and those not in the patient monitoring business, dropped support for integrations with Emergin.
- The acquisition of Emergin by Philips drove GE to Ascom.
- Philips did indeed get a 510k for the Emergin product, 4 years later in 2011.
Since the acquisition, Emergin has bled market share. (So many hospitals continue to reach this post via Google searches that this is one of the top 5 most popular posts on this site.) Much of the growth realized by Emergin competitors has been through Emergin customers replacing their systems with competitors’ systems. I doubt Philips gets too upset when an Emergin hospital that uses competitive patient monitors looks to replace their alarm notification system. Any hospitals with Philips patient monitoring would be fought for most vigorously.
So, how did Philips benefit from this acquisition? Probably the biggest benefit is that Philips gained a proprietary alarm notification system they could use to further increase switching costs for their installed base. Emergin, along with the VisICU acquisition also provided Philips with a layer of powerful medical device software they could use to create competitive advantage for patient monitoring sales.
Philips won their coveted number one patient monitoring market position based on their telemetry product strategy in the wake of the FCC Rule and Order in the summer of 2000 to designate new spectrum for telemetry monitoring (WMTS). Since becoming number one, Philips has been very careful to maintain their position. I think the acquisition of both Emergin and VisICU were intended to contribute to maintaining their market leadership position and that the strategy has proven to be a success.
Pictured above is a view from Emergin’s integration lab from 2007.