Royal Philips will spin off a substantial part of its business in 2016. The giant concern, with annual revenue of €21 billion and a €23 billion market cap, plans to offer shares in its lighting division, which accounts for a quarter of its business. This measure is another step in the change the company has been undergoing in recent years from dealing in industrial and household electronic products (such as TVs and electric razors) to a company with a special focus on health.
Philips's products are designed to create a continuity of treatments from the hospital (where the company operates imaging systems, medical devices, and large systems for managing all of a hospital's information) to the patient's home (where the company offers home medical devices, but also consumer health products, such as a toothbrush that measures the health of a person's mouth and a refrigerator that monitors food consumption). Through this change and integration, Philips hopes to dominate the growing and flourishing digital health sector.
"The measure that we have announced splitting the company into two is dictated by our strategy," Royal Philips president and CEO Frans van Houten said in an exclusive "Globes" interview during his recent visit to Israel. "Philips today is a decentralized company, and lighting and health don't have much in common. We realized more investors could be brought by two separate companies, because they will both be large companies with a great future. At the company that will remain under the name 'Philips,' we'll focus on health from the hospital by closing the circle between treating the healthy person at his home and integrative treatment he will get at hospitals."
The vision of integrative medicine
Israel plays a key role in this new vision of van Houten and Philips. Philips has a development center in Israel with 850 employees, including a CT division, but also a medical information management division designed to facilitate continuous monitoring of a patient's treatment. Philips and Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) recently launched a joint technology incubator, Sanara Ventures, in which medical devices and digital medical capabilities will be developed.
"We are already seeing how the information systems can improve efficiency at hospitals by distributing information and generating better cooperation between doctors and between doctors and patients. At a later stage, more information can make it possible to change the patient's behavior at home, and keep him from returning to the hospital. Philips is already an important player in this field, but we want to be twice as big, and to provide a complete solution."
"Globes": It looks like today's hospitals are still far from that.
van Houten: "Not that far. We're already carrying out pilots with several hospitals for this activity, including home support with regular monitoring of the patient, including consumption of medications and video calls with a doctor when necessary, and transferring information to the hospital about the patient's condition. Figures show a 50% drop in patients returning to the hospital, the total cost of the patient's treatment went down 30%, and patients are more satisfied. At the same time, there's no doubt that at most hospitals, even in this plan, things should be better organized, so that all the digital systems affecting the patient are better coordinated."
What will the significance of digital medicine in our lives 20 years from now?
"We will be measured in all sorts of ways such as continuous measurement of cholesterol, blood pressure, and calorie consumption, for example, including intervention by a coacher. We'll also be able to check if you have allergies, and to use our devices to purify the room in which the allergen bothering you is found. This will all happen through the presence of Philips in the home, the bath, and the kitchen. This information can be put on the cloud, and they you'll get a phone call from the doctor, who will prescribe preventative treatment for you, if necessary.
"We're already working now on products that predict a heart attack eight hours before the symptoms appear. The goal is to enable people, especially chronic and elderly patients, to live better lives. My mother is 86, and has had three strokes, because she didn't take care of herself. Today, we, her children, can keep track of her everywhere.
"Another change that will take place is that medicine will be more personalized. We'll know everything about your genome, and we'll add this information to the information we get from the monitoring devices. Philips won't be the company that decodes the your genome, but we'll be the ones to integrate your genetic information, the information from your imagining pictures, the information from the pathological analysis of a biopsy taken from you, and the information from your regular monitoring devices in order to achieve new insights about your condition."
For example, in the case of cancer, the imaging pictures can show how a malignant tumor with certain genetic characteristics develops gradually, and compare the results obtained following treatment with various drugs. An algorithm can also be used for all the genetic information, all the imaging information, and all the information about the prescribing of drugs at a given hospital. It can be seen within minutes how the tumor of a patient whose cancer reflects gene X and has been treated with drug Y has shrunk, and which other drugs did not affect it, but did affect tumors with different genetic and clinical characteristics. The challenge is use all this information to create a picture of the situation with real significance for medical treatment. The doctors tell us, 'Don't flood me with information; give me what I need.'"
"Excellent knowledge of both the patient and the doctor"
Are the doctors afraid that you'll take away part of their job?
"Absolutely not, and we don't intend to. If a doctor is keeping track of a tumor, and wants to know how it's growing, today he has to do all sorts of measurements and calculations by hand. We can make it easier for him by doing the measurement automatically, and tell him the rate of change in the tumor in a logical way, instead of simply swamping him with data."
Philips, of course, is not the only company playing in this market. Almost all the medical companies, pharmaceutical companies, and medical device companies, as well as non-medical companies such chip companies and communications companies, want to take part in the game, and they all say that their platform will lead the revolution.
Who will eventually manage the solution?
"They'll all cooperate, be we'll be the ones to coordinate the solution. We have unique capabilities in this sphere, because Philips has excellent knowledge of both the patient and the doctor. We have both a medical equipment division and a consumer products division.
"Hospitals sometimes ask us to teach them about what happens to the patient in other words, what the patient goes through from the moment he decides to go to the hospital , what happens when he gets there, his treatment, and his ensuing follow-up treatment at home. We know a lot about this because of our information systems. We already know how to make a big improvement in the process by which the patient goes through a various hospital waiting lines and waiting rooms, and to enable him to get as many services as possible in as short a time as possible, without having to go home and come back, and with having to go between departments in which he has to introduce himself again each time, and get in a new waiting line. These delays occur only because the information about managing the waiting lines is unavailable to anyone at the hospital who can use it. Shortening waiting times prevents the waste of resources and facilitates quicker medical decisions, and that's medically significant.
"Because we manage the information at hospitals and also know how to connect with the home, we believe that we'll be the ones to offer the overall solution in which the technologies of other companies will be assimilated. There's no doubt that as soon as you want to offer a complete solution, you need cooperation."
What technologies will you want to include, but don't plan to develop by yourselves?
"Sensors, miniaturization of sensors, and miniaturization in general, algorithmics, deep machine learning, new methods of drug delivery, new treatment methods for chronic diseases.
"It's also important to think about the patient's convenience. Future devices will be constantly on and connected, but also less intrusive, so many design changes are necessary. We're also cooperating with cloud computing companies - they're good at it, and we have no desire or need to reinvent the cloud. We can add our ideas to it, and applications developed by doctors.
"Just like the smartphone platform brought the world a lot of innovation from various sources, we hope to be the basis for innovation by doctors and patients. During the year, we'll present a system that will facilitate development by various parties."
"Connecting to the hospital"
Did changing the vision change your organizational culture?
"Yes, definitely. We 're aiming at faster and more agile development (agile, the professional term for rapid and efficient software development, G.W.) and closer cooperation with the customer - the hospital. The change in approach also led us to establish a laboratory near Harvard University and MIT in order to learn from their innovate approach in software. In addition, the search for the spirit of innovation led us to increase our activity in Israel by 60% in three years.
"We have important relationships with hospitals in Israel, with almost all the major hospitals, and with Assuta. Three years ago, I visited here as part of my job as CEO, and I was excited about what Israel had to offer. I knew then, following the meeting with the Chief Scientist, that I wanted to build a platform of initial investments in Israel."
The life of Israeli startups has become difficult in recent years. It's harder to raise money, and it's difficult to build a sales setup. What advice can you give them?
"It's usually rather difficult for startups in this sector, because the hospitals are a widely dispersed group of customers, and it's hard to reach several of them at once. Today, though, thanks to the Internet, the initial contact can be created relatively easily and cheaply, and the pace at which technology is adopted is increasing. In my opinion, a startup has never had a better time than now to enter this market.
"I suggest that at the beginning, a startup should make contact with a hospital as soon as possible, as we're doing, to help it and to serve as a site for its testing and efforts. An incubator like Sanara can help make this contact."
In contrast to other medical companies, and technology companies in general, you have chosen to manufacture in Israel, not just put your development center here. What led you to this decision?
"We're producing very special parts here for our imaging systems, and in order to produce components like this, you have to be close to R&D, and the R&D capability is here. Incentives and taxation aren't so critical. They have some effect, but that's not what determines the decision where to produce; it’s the capability."
Teva CEO Erez Vigodman cites goals for the joint incubator with Philips" "We'll make at least 20% on the investment"
van Houten's visit to Israel is taking place on the occasion of the official opening of the Sanara incubator, in which Philips is a partner with Teva. Assaf Barnea will manage the incubator.
As of the date of the launch, the incubator had already considered 250 companies, and had invested in two of them: Kaleidoscope Medical, which has developed a system for protecting against radiation during catheterization (Philips is already cooperating with Corindus Vascular Robotics, a semi-Israeli company in a similar field), and MGD, which has developed a mobile device for testing lung functioning that can be used to monitor COPD patients in hospitals and at home more frequently and effectively than the devices currently used, according to the companies.
At the event, Philips and Teva announced that they would invest up to NIS 100 million (NIS 50 million each) in Sanara's companies over eight years, beyond supporting them with their knowledge, experience, and strategic connections. The Office of the Chief Scientist is also providing supplementary financing. Three or four companies will be included in the incubator by the end of the year.
At the event, van Houten stated, "Over the year, the Israeli investment community has presented groundbreaking innovation through the global market. We regard Sanara Ventures as an excellent way for Philips to be involved in innovative developments in medical technologies."
Where do you intersect with the vision of Teva, a pharmaceutical company?
"Both companies agree that in order to carry out these revolutions, a lot of innovation is needed, and one of our jobs is to make sure that innovation does not slacken. We also agree that health has been very compartmentalized up until now doctors, medical devices, drug companies, home treatment and in the new world of health, they all have to come together."
Vigodman said, "The public is becoming much more aware of health, diseases, and the risks and preventative possibilities. For us this is a significant change, because patients no longer want to just get drugs from us; they want a complete health solution. We won't succeed as a company if we just chase after the next pharmaceutical molecule. Philips and Teva are the right companies to deal with the challenge together, because we're two veteran companies that are reinventing ourselves in a world of young companies."
Vigodman added that a return of at least 20% on the investment in the incubator was expected, together with the establishment of 3-5 significant companies with revenue of at least $200 million within 5-7 years, and at least two companies with revenue of $500 million within 7-10 years.
Published by Globes [online], Israel business news - www.globes-online.com - on September 29, 2015
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