In the face of high competition, the Dutch company
Royal Philips Electronics NV
(
PHG
) got approval from the U.S. Food and Drug Administration (FDA) to
sell a combination scanner that performs both positron emission
tomography (PET) and magnetic resonance imaging. The scanner is
expected to accelerate imaging time for cancer patients, as PET
identifies cancer cells as it absorbs chemical tracers.
The magnetic resonance imaging will be helpful to identify the
surrounding tissue. In addition, the magnetic imaging is also
capable of scanning bone and combining systems in order to improve
the diagnosis of cancer and cardiovascular diseases. The big
advantage of this machine is that these diagnoses can be done at
much lower radiation levels than X-rays.
In addition, the new scanner is expected to deliver with quality
and accurate diagnosis for patients. The new machine is designed in
a way that revolves the patient table between each modality to scan
a patient, to enable the system to perform both MR and hybrid
PET/MR studies individually.
This flexibility eliminates the need to invest in multiple
scanners and also brings down the throughput time. Patient comfort
is also enhanced, since the patient can remain on the same table
for both tests.
The approval is a big win for Philips as it expects the machine
to take market share from
General Electric Company
(
GE
). GE Healthcare has a 13% share of the U.S. hospital information
systems market, followed by
Siemens
(
SI
) which has an 11% share.
The hospital information systems market is the largest in the U.S.
valuing at $4.7 billion and has a growth rate of 10% per anum.
The permission to sell the PET/MR scanner culminates a
multi-million-euro development phase spanning seven years for
Phillips. The company already has 13 orders for this machine
outside the U.S.
Management at Philips believes that this growth and expansion
into the healthcare segment, which is one of the dynamic sectors,
will give a big cushion to the company as it diversifies away from
the struggling consumer electronics and lightning businesses.
According to Philips, the diagnostic imaging market is worth €16
billion-euro ($21 billion) globally, with a projected growth rate
of 3% to 5% a year. Philips has already installed five of these
scanners worldwide and has orders worth €30 million euros.
Philips' Healthcare segment (comprising 34% of the company's
revenue in fiscal 2010) is the second largest manufacturer of
medical diagnostic equipment, which includes X-ray, ultrasound,
magnetic resonance, medical information technology (
IT
), nuclear medicine, patient monitoring, information management and
resuscitation products, as well as a comprehensive range of
services.
We maintain an Underperform rating on the shares of Philips. The
company's reported earnings over the last couple of quarters have
come on lower revenues, primarily due to lower license revenues and
a decline at the Lifestyle Entertainment segment. The net cash flow
also declined significantly compared to the prior year,
attributable to higher working capital outflow related to higher
vendor payments.
However, with the implementation of Accelerate and the new
approval for marketing its scanners in the U.S., the company
expects to improve its performance through better growth and
earnings. Philips currently has a Zacks #4 Rank, which implies a
short-term Sell rating.
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