GE, Intel invest big in home health care market, challenge Philips

| Tuesday, April 7, 2009

Philips Respironics, the Murrysville-based home of Royal Philips Electronics Home Healthcare Solutions business, soon will face a new, formidable competitor.

General Electric Co. and Intel Corp. last week announced they will spend $250 million over five years to develop home health care products.

Demand for these products by 2012 will grow to more than $10.1 billion and $13.1 billion by 2017, according to The Freedonia Group Inc., a Cleveland-based consulting firm.

The GE-Intel partnership will expand development programs in home health and independent living technologies to include fall prevention, medication compliance, sleep apnea, cardiovascular disease, diabetes and personal wellness monitoring. General Electric in October acquired Vital Signs Inc., a provider of sleep apnea management equipment.

"We think this partnership offers the potential to lower costs by keeping people out of hospitals while giving health professionals the data they need to deliver the best possible care," said GE CEO Jeff Immelt.

Equipment to treat sleep apnea has been a Philips Respironics' mainstay since its founding more than three decades ago by Gerald McGinnis. Philips in 2007 acquired the independent Respironics Inc. for about $5 billion.

Philips Respironics in 2008 had revenue related to sleep and home monitoring products totaling nearly $1.3 billion of its $1.7 billion in total revenue. Home Healthcare CEO Don Spence has projected his unit will experience double-digit growth annually over the next five years.

"I think the partnership has a lot of potential, but Philips, with Respironics, is more established in a number of areas like sleep apnea products," said Bill Martineau, an analyst with The Freedonia Group.

The home health care market is forecast to outpace growth in the hospital business, making it a priority for Philips Electronics and GE. Aging populations will boost medical costs and force governments to move more care into homes, experts said.

"Is there enough business out there for GE and Intel• Certainly, the market is increasing in areas like caring for sleep apnea and diabetes due to the increase in obesity," said Kathy Seeman, executive director of the Pittsburgh office of SeniorBridge, a company that provides in-home care management.

General Electric is the world's largest imaging equipment manufacturer, but sales of such equipment to hospitals have been hurt since 2007 by federal budget cuts that reduced reimbursement for imaging procedures and demand.

The home health care industry is extremely fragmented. The Freedonia Group estimates that nearly 500 companies compete in the home medical equipment market in the United States alone, with a majority specializing in one or two product lines.

The top U.S. competitors, based on 2007 sales, included Philips Respironics, Baxter International, Invacare, Fresenius Medical Care, Cardinal Health, Hospira, Johnson & Johnson, and ResMed. Combined, the eight companies controlled about half domestic demand, or about $3.8 billion.

Since 2006, Philips has spent about $6 billion buying companies with home health-care operations, including Respironics, Raytel Cardiac Services, Lifeline Systems Inc. and Health Watch Holdings Inc.

"The Philips buyout was a good deal for Respironics, as the company can benefit from Philips' global reach, allowing Respironics to sell its products aboard and generate additional growth," said Peter Olofsen, an analyst in Amsterdam who follows Philips for Kepler Capital Markets.

"Respironics is an important business because of its high growth and high margins," Olofsen said. "As growth continues, Respironics will only become more relevant."

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