Will Nanox Disrupt The X-ray Systems Market?

Will Nanox Disrupt the X-ray Systems Market?

With its share price falling from more than $66 to less than $24, September was a tumultuous month for Nanox.

On August 25th, the medical imaging start-up closed its initial public offering, having raised $190m from the sale of 10,555,556 ordinary shares at a price of $18 each. Money poured in as investors were sold on Nanox’s cold cathode x-ray source and the subsequent reduction in costs that it would enable, as well as the vendor’s pay-per-scan pricing model that would let the company access new, untapped markets.

A week later the shares were being traded for almost double their opening amount, and by the 11th of September, they had reached a peak of $66.67. This meteoric rise soon came to an end though, as activist short-seller Andrew Left of Citron Research published a report comparing the Israeli start-up to disgraced medical testing firm Theranos and asserted that the company’s shares were worthless.

Other commentators added to Left’s criticism, causing investors to abandon the stock. Class action lawsuits followed, with legal firms hoping to defend shareholders against the imaging company’s alleged fabrication of commercial agreements and of misleading investors.

Nanox defended itself against the Citron attack, insisting that the allegations in the report are ‘completely without merit’, but the extra scrutiny and threat of legal repercussions have left the share price continuing to plummet, falling to $23.52 at month’s end.

Vendor Impact

– New business and payment models could capture demand from new customers in untapped and emerging markets

– Vendors should be reactive. A successful launch of Nanox’s X-ray system could channel more focus and resources on the portfolio of low-end X-ray systems

– Once established, recurring services are hard to displace

– However, brand loyalty and hard-earned reputations aren’t easily forgotten

Market Impact

– Potential for disruptive technology to expand access to medical imaging and provide affordable X-ray digital solutions, delivering a significant and rapid overall market expansion

– New customer bases could have less expertise and a lack of trained professionals – ease of use becomes a critical feature

– Where X-ray system price is a battleground, and a fundamental factor driving purchasing decisions, Nanox’s proposed ecosystem offers revenue-generating opportunities

The Signify View

Assessing the viability and long-term potential of any business is a dangerous game, doubly so if it depends on a closely guarded game-changing technological innovation as is the case with Nanox. Fortunes are won and lost on a daily basis by investors, speculators, and gamblers trying to get in on the ground floor of the next ground-breaking company after being convinced by slick presentations and thorough prospectuses.

There is likely merit in some of the arguments being put forward by those on either side of the Nanox debate. For example, the lack of peer-reviewed journal articles about new technology is questionable. But, the skepticism around the feasibility of Nanox’s technology seems to ignore that research into cold-cathode x-ray generation, the cornerstone of Nanox’s offering has been ongoing for numerous years, and isn’t as out of the blue as the naysayers may suggest.

Regardless of these and other specifics in the ongoing fracas between short-sellers, Nanox, investors, and lawyers, all of whom have their own agendas, the voracity with which the stocks were initially purchased shows the keen appetite investors have for a company that would bring disruption to the X-ray systems market.

When delving into Signify Research’s data on this market, it is easy to see why. Across many developed and mature regions, the market has become relatively stable. It is one of replacement and renewal rather than selling to new customers and increasing the accessibility of X-ray imaging. Developed markets do continue to drive growth for X-ray manufacturers to some extent, particularly as a result of digitalization and favored reimbursement for digital X-ray imaging.  However, by and large, the market remains broadly flat, with a CAGR of just 2.7% forecast for the period 2018-2023.

nanox image

Figure 1: While there are some growth areas, the X-ray market as a whole is very stable

New business

Nanox has strong ambitions to outperform this underwhelming outlook by utilizing its unique and more affordable technology to offer a relatively feature-rich system, dubbed the Arc, at a far lower price than existing digital X-ray systems. Competing on price is only one part of the equation, however.

After all, there are countries where, despite their economies of scale, the multi-national market leaders in medical imaging are unable to compete with domestic manufacturers, which are able to produce X-ray systems locally, with lower overheads, and no importation costs. Globally, there are also a large number of smaller imaging vendors, which have limited, yet low-cost offerings at the value end of the market, with this increased competition driving down average selling prices.

To differentiate itself further, Nanox also plans to launch with a completely new business model. Instead of traditional transactional sales, which see providers simply purchase and pay the full cost of the imaging system in one installment, use the system for the entire shelf life of the product and then replace with an equivalent model, Nanox plans to retain ownership of its machines, but charge providers to use them on a pay-per-scan basis.

There are some regions and some situations where legislation and other factors make this model unfeasible, so Nanox will also make its products available to purchase outright, as well as licensing its technology to other firms. However, the start-up’s focus is on offering medical imaging as a service.

The company says that this shift from a CapEx to a managed service approach means that instead of competing with established vendors over market share, it will be able to expand the total market, enabling access to imaging systems in settings where they have been hitherto absent, with urgent care units, outpatient clinics, and nursing homes being suggested as targets.

According to the Nanox investor’s prospectus, current contracts already secured (although the legitimacy of these deals is one of the issues raised by the short-sellers) feature a $40 per scan cost, of which Nanox receives $14 – although the exact figure varies depending on regional economics. The contracts feature a minimum service fee equivalent to seven scans a day, although the target is somewhat higher, with each machine expected to be used to produce 20 scans a day, for 23 days a month.

If Nanox’s order book is as valid as the company insists, and it already has deals for 5,150 units in place, each system will consequently be bringing in a minimum of $27,048 dollars per year for a minimum total revenue of $139m. If the systems are used 20 times a day as Nanox hopes, that means almost $400m in sticky recurring revenues annually. To put that in perspective, one of the market leaders for X-ray imaging systems in 2018 was Siemens Healthineers, which turned over almost $2.8bn across its general radiography, fluoroscopy, mammography, mobile, angiography, and CT imaging divisions.

With an order book that is, on the face of it, this healthy, there have been questions as to why Nanox went public at all, but the listing may be required for this business model to work. The Israeli vendor says that the vast majority of the investment will be sunk into producing the Nanox scanners, and the associated manufacturing capacity. This is necessary because unlike other imaging companies selling systems on a CapEx basis, Nanox will receive nothing for delivering scanners to customers. Revenue is generated later as the systems are used.

This means that the company is effectively fronting the initial cost of the systems, so needs to get as many units installed and being used as quickly as possible to recoup its initial costs. Unlike other vendors, it cannot rely on sales of a first tranche to fund the second and so on, in its new managed service model, it is better to mass produce everything at once.

Open to exposure

There is, however, nothing to stop other, established players from switching to a similar model. This should be of concern to Nanox, after all, Siemens Healthineers or GE Healthcare already have the manufacturing capacity and capital ready to offer products in a similar way.

And of course, Nanox, shouldn’t underestimate the difficulty of disrupting a long-established market. Despite ample funding and solid products, other companies are still struggling to make an impact in other markets. For example, Butterfly Network, a vendor offering an affordable handheld ultrasound solution, has a valuation of over $1 billion and has received more than $350m in funding.

In 2019, the company turned over $28m, enough to make it the market leader in the nascent handheld category, but in a global ultrasound market worth almost $7bn, at present, it is little more than a drop in the ocean.

Nanox hopes that its own new business model would be disruptive by opening up the market to a far greater range of customers than are currently served. A nursing home, for example, might not be able or willing to allocate the cost of a CT machine from a single year’s budget, but spreading that cost as the scanner is used, and particularly if that cost is passed on to patients at a time of use, on-site imaging suddenly becomes a far more feasible proposition.

What’s more, if a company was able to increase its product’s user base there is a strong possibility for upselling additional services, software, and tools. These could be things like AI modules that increase workflow efficiency, or, especially pertinent given the pricing model could allow machines to be installed in new settings that lack on-site expertise, tools that aid clinical decision making.

Beyond that, there is also ample scope for an imaging vendor to entice a customer into its ecosystem with a scanner that has no cost at the point of delivery, before getting it to commit to its own PACS and other IT systems. Being able to fully exploit these new customers relies, in the first instance, on being able to get a foot in the door. That is why an imaging service model could be so beneficial, even if the returns on the scans themselves aren’t especially lucrative.

Features first

While adopting a new business model and securing revenue from add-ons and upselling would help established vendors countenance the price differential Nanox proposes, if we are to take the start-up at its word, addressing its feature set might be another matter entirely.

As well as just providing imaging hardware, Nanox is offering a service that, at face value, is more complete. The Arc automatically uploads all imaging data to its cloud SaaS platform. This platform would initially use AI systems to ‘provide first response and decision assistive information’ before radiologists could provide final diagnoses that could then be shared with hospitals in real-time.

Fig2

Figure 2: With teleradiology read volumes increasing, it makes sense that the necessary hardware comes baked into the Arc

There is currently limited information available about the exact nature of the so-called Nanox.CLOUD and its integration with the Arc, although several assumptions can be made:

– Firstly, although built-in connectivity is being touted as a feature with clinical benefits, its inclusion is as likely to be a necessity as a design choice, given that Nanox presumably needs to be able to communicate with the systems in order to find out scan volumes and bill accordingly. Or, more drastically, render the system inoperable if people don’t keep up with payments.

– Another assumption that can be made is that the full suite of tools wouldn’t be included in the basic pay-per-scan fee. Signify’s Teleradiology World – 2020 report found that in 2020, the average revenue per read for a teleradiology platform is, in North America for example, $24.40. As such, teleradiology services would only be able to be offered at an additional cost, creating another revenue stream for Nanox.

– Another sticking point could also be Nanox’s promise to enable the integration of its cloud into existing medical systems, via APIs. While well and good in theory, the competitiveness, complexity, and proprietary nature of many medical imaging workflows, combined with the fact that many vendors have absolutely no incentive to make integration easy for the newcomer, mean that in practice, it is likely to either be a prohibitively expensive, or frustratingly limited offering. This is one area where established vendors, which already offer comprehensive medical imaging packages, have a distinct advantage.

Back down to Earth

The short positions promoted by commentators including Citron Research and Muddy Waters Research postulate that the Nanox.ARC scanner isn’t real. There are some legitimate questions, but running through their papers is also an attitude that Nanox’s claims are simply implausible, whether that is because it has an R&D budget a fraction of the size of GE, or because anonymous radiologists unrelated to the company haven’t seen anything like it before.

It is worth remembering, though, that these short sellers will benefit financially if Nanox slumps. Nanox conversely, is obviously financially incentivized to promote its technology and its potential, and it wouldn’t be the first company, to promote the limited fruits of its start-up labor in a flattering light.

As so often happens in these he said, she said situations, the truth could well lie somewhere between the two extremes. Even in this instance, even if Nanox fails to deliver on some of its more impressive promises, the fact is, it has suggested bringing a whole new customer base into play and laid out a strategy for selling to them.

With that being the case, for a big vendor the issue of whether Nanox is legitimate almost becomes moot, their focus should be what these other customers require, how to get these customers into their product ecosystems, and what add-on products, and additional services they can feasibly sell them at a later date.

If nothing else, the entire Nanox furor shows that to achieve growth in mature markets, a vendor’s innovation needs to extend beyond its products.


About Alan Stoddart

Alan Stoddart is the Editor at Signify Research, a UK-based market research firm focusing on health IT, digital health, and medical imaging. Alan joined Signify Research in 2020, using his editorial expertise to lead on the company’s insight and analysis services. 

The Future of the ICU? How Clinical Decision Support Is Advancing Care

The Future of the ICU? How Clinical Decision Support Is Advancing Care
Kelly Patrick, Principal Analyst at Signify Research

Without a doubt 2020 has been a devastating year for many; the impact of COVID-19 on both personal lives and businesses has had long-term consequences. At the end of September, the number of COVID-19 cases fell just short of 350 million, with just over 1 million deaths reported. The expectation of a second peak in many countries exposed to the deadly illness is being handled with care, with many governments attempting to minimize the impact of an extreme rise in cases.  

COVID-19 the aftermath will be the new normal?

Despite the chaotic attempts to dampen the impact of a second peak, it is inevitable that healthcare facilities will be stretched once again. However, there are key learnings to be had from the first few months of the pandemic, with several healthcare providers opting to be armed with as much information to tackle the likely imminent surge of patients with COVID-19 head-on. The interest in solutions that offer support to clinicians through data analysis is starting to emerge with several COVID-19 specific Artificial Intelligence (AI) algorithms filtering through the medical imaging space. 

Stepping into the ICU, the use of analytics and AI-based clinical applications is drawing more attention. Solutions that collect relevant patient information, dissect the information, and offer clinical decision support are paving the way to a more informed clinical environment. Already, early-warning scoring, sepsis detection, and predictive analytics were becoming a focus. The recent COVID-19 outbreak has also driven further interest in COVID-19 specific applications, and tele-ICU solutions, that offer an alternative way to ensure high-risk patients are monitored appropriately in the ICU. 

What does the future hold?

Signify Research is currently in the process of assessing the uptake of clinical decision support and AI-based applications in the high acuity and perinatal care settings. An initial assessment has highlighted various solutions that help improve not only the efficiency of care but also improve its quality. Some of the core areas of focus include:

Clinical Decision Support & Predictive Analytics

Due to the abundance of patient data and information required to be regularly assessed and monitored, the high-acuity and perinatal care settings benefit from solutions offering clinical decision support. 

The ICU specifically has been a focus of many AI solution providers, with real-time analysis and support of data to provide actionable clinical decision support in time-critical situations. Clinical decision support solutions can collate data and identify missing pieces of information to provide a complete picture of the patient’s status and to support the treatment pathway. Some of the key vendors pathing the way for AI in clinical decision support in the ICU include AiiNTENSE; Ambient Clinical Analytics; Etiometry; BetterCare; AlertWatch; and Vigilanz Corp.

Early-warning

Early-warning protocols are commonly used in hospitals to flag patient deterioration. However, in many hospitals this is often a manual process, utilizing color coding of patient status on a whiteboard in the nurse’s station. Interest in automated early-warning systems that flag patient deterioration using vital signs information is increasing with the mounting pressure on stretched hospital staff.

Examples of early-warning software solutions include the Philips IntelliVue Guardian Solution and the Capsule Early Warning Scoring System (EWSS). Perigen’s PeriWatch Vigilance is the only AI-based early-warning scoring system that is developed to enhance clinical efficiency, timely intervention, and standardization of perinatal care.

The need for solutions that support resource-restricted hospitals has been further exacerbated during the COVID-19 pandemic. Many existing early-warning vendors have updated their surveillance systems to enable more specific capabilities for COVID-19 patients, specifically for ventilated patients. Companies such as Vigilanz Corp’s COVID Quick Start and Capsule Tech’s Clinical Surveillance module for ventilated patients enables healthcare professionals to respond to COVID-19 and other viral respiratory illnesses with customizable rules, reports, and real-time alerts.

Sepsis Detection

Sepsis is the primary cause of death from infection, accounting for 20% of global deaths worldwide. Sepsis frequently occurs from infections acquired in health care settings, which are one of the most frequent adverse events during care delivery and affect hundreds of millions of patients worldwide every year. As death from Sepsis can be prevented, there is a significant focus around monitoring at-risk patients.

Several health systems employ their own early-warning scoring protocol utilizing in-house AI models to help to target sepsis. HCA Healthcare, an American for-profit operator of health care facilities, claims that its own Sepsis AI algorithm (SPOT) can detect sepsis 18-hours before even the best clinician. Commercial AI developers are also focusing their efforts to provide supporting solutions.

The Sepsis DART™ solution from Ambient Clinical Analytics uses AI to automate early detection of potential sepsis conditions and provides smart notifications to improve critical timeliness of care and elimination of errors. Philips ProtocolWatch, installed on Philips IntelliVue bedside patient monitors, simplifies the implementation of evidence-based sepsis care protocols to enable surveillance of post-ICU patients. 

Tele-ICU

The influx of patients into the ICU during the early part of 2020 because of COVID-19 placed not only great strain on the number of ICU beds but also the number of healthcare physicians to support them. Due to the nature of the illness, the number of patients that were monitored through tele-ICU technology increased, although the complex nature of implementing a new tele-ICU solution has meant the increase has not been as pronounced as that of telehealth in primary care settings.

However, its use has enabled physicians to visit and monitor ICU patients virtually, decreasing the frequency and need for them to physically enter an isolation room. As the provision of healthcare is reviewed following the pandemic, it is likely that tele-ICU models will increase in popularity, to protect both the patient and the hospital staff providing direct patient care. Philips provides one of the largest national programs across the US with its eICU program.

Most recently, GE Healthcare has worked with Decisio Health to incorporate its DECISIOInsight® into GE Healthcare’s Mural virtual care solution, to prioritize and optimize ventilator case management. Other vendors active within the tele-ICU space include Ambient Clinical Analytics, Capsule Health, CLEW Med, and iMDsoft.

Figure 1 Signify Research projects the global tele-ICU market to reach just under $1 billion by 2024.

Interoperable Solutions

More and more solutions are targeted toward improving the quality of patient care and reducing the cost of care provision. With this, the requirement for devices and software to be interoperable is becoming more apparent. Vendors are looking to work collaboratively to find solutions to common problems within the hospital. HIMMS 2020 showcased several collaborations between core vendors within the high acuity market. Of note, two separate groups demonstrated their capabilities to work together to manage and distribute alarms within a critical care environment, resulting in a quieter experience to aid patient recovery. These included:

– Trauma Recovery in the Quiet ICU – Ascom, B Braun, Epic, Getinge, GuardRFID, Philips

– The Quiet Hospital – Draeger, Epic, ICU Medical, Smiths Medical, Spok​


About Kelly Patrick, Principal Analyst at Signify Research

The Future of the ICU? How Clinical Decision Support Is Advancing Care
Kelly Patrick, Principal Analyst at Signify Research

Kelly Patrick is the Principal Analyst at Signify Research, a UK-based market research firm focusing on health IT, digital health, and medical imaging. She joined Signify Research in 2020 and brings with her 12 years’ experience covering a range of healthcare technology research at IHS Markit/Omdia. Kelly’s core focus has been on the clinical care space, including patient monitoring, respiratory care and infusion.


Why International Expansion Must Remain a Priority for Cerner, Epic, Allscripts, MEDITECH

What You Should Know:

Why International Expansion Must Remain a Priority for Cerner, Epic, Allscripts, MEDITECH

– How the top US acute EHR vendors, namely Cerner, Epic, Allscripts, and MEDITECH (+85% share of US acute market in terms of revenues), have progressed on international expansion.


As highlighted below, there is a significant variance amongst the big four in terms of revenue and share of business outside the US. Cerner has by far the highest revenue at more than $650M in 2019, representing 12% of its business. Whilst MEDITECH has considerably lower revenue than Cerner, its international revenue is broadly similar to a share of its total revenue.

By contrast, Allscripts and MEDITECH each has international business that is comparable in terms of revenues, but as a share of overall revenues, international is much less important for Allscripts.

Allscripts’ international revenue was lower than Epic, Cerner, and Meditech in 2018, however, its growth in 2019 enabled it to overtake MEDITECH and become the third largest of the four vendors in 2019.

Main Chart

Cerner

cerner

Cerner’s international revenues fell marginally as a proportion of its total business in 2019 (11.5%, down from 11.9% in 2018), although revenues grew in absolute terms by 3%. This growth was aided by success in Europe, particularly in the UK and Nordics where it won new contracts. Cerner’s overall revenue suffered a 3% decline in 1H 2020 (versus 1H 2019). Despite the impact of COVID-19, its international business witnessed marginal revenue growth (+1%) and rose as a share of its overall business (11.9%) during this period.

Cerner received a significant boost to its international business in 2015 when it acquired Siemens’ EHR business. This provided it with a broad footprint of deployments in DACH (Germany, Austria, Switzerland), Benelux, France, Norway, and Spain. Since this acquisition, the challenge for Cerner had been to migrate the customer base to Millennium. However, this has not happened to date, particularly in Germany and Spain.

Tough market conditions, especially in Germany which already had a highly competitive acute EHR market, was another factor impacting the market growth. The above challenges faced by Cerner were key drivers behind the deal to sell parts of Cerner’s Healthcare IT portfolio in Germany and Spain to CompuGroup Medical (CGM). Cerner will continue to maintain a presence in Spain and German acute markets via its i.s.h.med solution (originally contracted to SAP/Siemens), which was not included in the CGM agreement. i.s.h.med has also provided Cerner a footprint in several other European, African, and Asian countries such as Russia and South Africa.

In other European countries where Cerner has a Millennium footprint it has had more success, and the additional product support and development costs have been less.

Cerner has a substantial UK presence, in part owing to its legacy relationship with BT and the subsequent contracts given out under the largely failed NPfIT program. These customers do use Millennium and the company has grown this business in recent years. To date, Cerner has an installed base of 26 trusts in the UK, up from 22 in 2019, and has had success upscaling these contracts to include products such as HealtheIntent. It has also grown the number of acute trusts served. For example, in 2018 it won contracts with The Countess of Chester Hospital National Health Service Foundation Trust, previously using MEDITECH, and Sandwell and West Birmingham Hospitals. In 1Q 2020, Cerner was selected by two NHS Foundations Trusts (Ashford and St Peter’s Hospital and Royal Surrey) to implement a shared Millennium EHR system, which should support a more coordinated care approach between the two organizations.

Elsewhere in Europe, Cerner expanded its Nordic business recently with large contracts in Region Skäne and Västra Götalandsregionen (both in Sweden) during 2018 and 2019. Cerner was chosen as the preferred EMR supplier for Central Finland (four of 19 sote-areas) and will have the opportunity to expand the contract to other surrounding regions in the mid-long term. However, it lost its Norwegian footprint to Epic when it chose not to bid when the Helse Midt-Norge (Central region) contract was renewed in 2019.

The company has also seen success in the Middle East, particularly in the UAE, Qatar, and Saudi Arabia. However, growth has been more subdued over recent years. In the UAE, it has large contracts with the Ministry of Health and Prevention (MOHAP) and Abu Dhabi department of health (HAAD). Whilst Cerner already has a significant footprint in Saudi, e.g. King Faisal Hospital, the country is still relatively untapped in terms of deployment of digital solutions and offers Cerner a good future growth opportunity.

In Asia Cerner has been successful in Australia, winning state/territory-wide EHR contracts in both Queensland and New South Wales (the only vendor to win two state/territory-wide contracts), and also had success in other states/territories where procurement is decentralized.  Cerner was aiming to add a third centralized Australian contract to its customer base, namely ACT Health (Capital Territory), but was unsuccessful in a head-to-head with Epic, which was selected as the chosen partner in July 2020. Cerner aims to push its PHM solution (HealtheIntent) through its existing state-level contracts where it already has a presence with Millennium.

Most of Cerner’s non-US business in the Americas is in Canada where approximately 100 hospitals are estimated to be using its solution. Here it faces competition from the other leading US vendors such as MEDITECH, Epic, Allscripts, and also local vendor Telus.

In summary, Cerner has broadly made a success of its international business. It tops the market share table in several of its international geographies and it has done this while broadly maintaining the margins achieved with its US business. However, Cerner’s divestiture of the legacy Siemens business in Germany/Spain, and withdrawal from Norway (Central region), will reduce the size of its European business. Cerner also faces an increasing threat from EMEA competitor Dedalus, whose recent acquisitions of Agfa Health’s EHR and integrated care business, and DXC’s healthcare provider business (deal to close in March 2021), could impact Cerner’s position as acute EHR market leader in EMEA moving forwards.

Allscripts

Allscripts

Allscripts’ international revenues witnessed a substantial rise in real terms (up by 34% versus 2018) and as a share of overall business in 2019. This was partly due to a strong performance in the UK with existing customer sales, and new contract wins in New Zealand, Qatar, Philippines, and Saudi Arabia. The impact of COVID-19 on Allscripts’ total revenues was comparatively significant (versus Cerner and MEDITECH), with declines of 9% and 6% respectively in 2Q 2020 and 1H 2020. It is estimated that these declines predominantly impacted North American revenues, whereas international revenues suffered to a lesser extent.

Canada had historically been its largest market outside the US accounting for just under a third of its non-US business, however, its share fell by six percentage points from 2018 to 23% in 2019, largely owing to the growth of its business in the UK and Australia, which are estimated to now be broadly similar in size to Canada.

In Canada, it is a top-five player, but lagging someway behind MEDITECH, Cerner, and Epic in terms of hospital installations. Allscripts continues to steadily grow its Canadian business with a focus on selling added functionality/upgrades to long-standing customers in three provinces (Manitoba, Saskatchewan, and New Brunswick). It aims to expand its Canadian coverage by securing the contract with Nova Scotia province in 2H 2020.

Success in EMEA was mainly driven by wins in the UK, which included two Sunrise clinical wrap contracts along with several added-value solutions for existing client systems. In May 2019, Gloucestershire Hospitals NHS Foundation Trust selected Allscripts to provide a clinical wrap around InterSystems’ PAS. This was rolled out to the entire Trusts’ inpatient wards in March 2020 and represented the fifth clinical wrap around another vendor’s PAS in the UK. In the UK it serves 18 acute trusts (only Cerner, DXC, and SystemC are estimated to serve more).

Much of the company’s UK footprint was built from its acquisition of Oasis Medical Solutions six years ago. However, it has slowly built on this foundation adding new acute trust customers and upgrading many from the legacy Oasis PAS solution to Sunrise and other Allscripts’ solutions such as dbMotion – although perhaps at a slower rate than hoped. Besides the UK and Italy (where it has one Sunrise contract) Allscripts does not have immediate plans for Sunrise expansion in mainland Europe. However, countries that are attempting to implement integrated data-sharing programs (e.g. France, Germany, and Italy), offer Allscripts potential markets for its dbMotion solution.

Allscripts also achieved growth in the Middle East, fuelled by a contract win in March 2020 with Qatar’s Alfardan Medical / Northwestern Medicine for Sunrise. Allscripts has been working on opportunities across Saudi Arabia, UAE, Oman, Qatar, and Kuwait, with different strategies for each country. For example, Oman has a relatively low level of digital healthcare maturity and is being targeted with EMR solutions, whereas relatively mature health markets (e.g. UAE and Qatar) are being targeted with PHM/dbMotion.

Its entry into the Oceania market was also largely via acquisition (Core Medical Solutions in 2016). Core Medical Solutions was a leading player in the smaller hospital and private hospital markets in Australia. Allscripts has added to this legacy with a state-wide Sunrise EHR contract in South Australia (although deployment has not been without its challenges). Sunrise has been implemented in Royal Adelaide Hospital, South Australia Health and Medical Research Center, University of Adelaide, and the University of South Australia.

In 4Q 2019 Allscripts added South Australia’s largest regional hospital network, Mt Gambier, to its coverage. It also had success selling its Sunrise solution outside of this state-wide contract (e.g. Gippsland Health Alliance in Victoria in 2018) and in 2019 its footprint expanded into New Zealand.

In terms of its broader Asian strategy, the company recently split its Asian business into two sub-businesses, ASEAN and ANZ, indicating it sees opportunities beyond its existing Singapore footprint in South East Asia. This has been supported by 2019 wins in the Philippines. In less digitally mature countries, the BOSSNet EHR solution it obtained via the Core Medical Solutions acquisition offers a potential route to offering a more entry-level EHR solution compared to Sunrise.

At just 4.0% of revenues in 2019, international remains a relatively niche business for Allscripts. To some extent the company needs to decide where it wants to take this business. Relying on organic growth in the regions it currently serves is unlikely to move the dial far from this 4.0% figure over the next five years. A significant change is likely only via acquisition, something the company has not shied from in the past. However, should it focus on cementing its position in existing markets or expansion into new? Given it is not a top-two vendor in any of its current geographies outside the US, acquisition to cement its position in existing markets would make more sense than further expansion into new geographies.

Epic

Historically, there have been two major points of entry into new geography for EHR vendors; either through a partnership to gain expertise and ‘localize’ a solution or through the acquisition of a local vendor (as with Cerner and Allscripts earlier). Both have their challenges, with partnerships often being slow to progress and acquisition resulting in the long-term support, and in some instances a significant burden of a legacy solution (e.g. Cerner is still supporting several legacy Siemens EHR solutions nearly six years after announcing its acquisition plans and most of Allscripts’ UK customers are not using Sunrise).

Examples where vendors have taken on large regional projects without sufficient ‘localization’, have often resulted in projects not meeting expectations and negatively affecting both vendors and providers alike. To some extent, Epic has suffered from this with several of its non-US deployments, in particular in the UK (e.g. Cambridge University Hospitals in 2015) and more recently in Denmark (regional contracts in the Zealand region and Capital Region) and Finland (regional contract in the Apotti Region). 

Epic has not made acquisitions to enter its international markets and in all these examples EHR implementations have not met expectations and have either had to be scaled back, delayed, or required a significant amount of remedial action. The main criticism is often not enough ‘localization’ before deployment. That said Epic has had success elsewhere internationally, with less controversy surrounding its deployments in DACH, Netherlands, Middle East, and Singapore. In Canada, it is estimated to be the market leader in terms of revenues and second only to MEDITECH in terms of hospital deployments.

Epic has increased its focus on international expansion in recent years with incremental increases in revenue. However, it needs to improve on implementation/execution or future opportunities may be limited.  The fact it was the only vendor to hit the preselection criteria in Norway for the Helse Midt-Norge contract which it won in 1Q 2019 (replacing Cerner) suggests that progress has perhaps been made on this front.

Historically Epic has struggled to win any Australian state/territory-wide deployments where Cerner, Allscripts, and InterSystems have been successful. However, Epic strengthened its position by winning its first state contract in July 2020 – a $151m deal for the Australian Capital Territory (ACT Health). This was also significant due to it being the first time the Capital Territory had centralized contracting.

MEDITECH

Meditech

At 12% of 2019 revenue, MEDITECH had the highest proportion of non-US sales of all the vendors analyzed in this insight. However, the overwhelming majority of this was from Canada, where it is estimated to be the market leader in terms of the number of hospital installations (although in terms of revenues it is smaller than Epic, Cerner, and Allscripts). Of approximately $60M in non-US sales in 2019, nearly $50M is estimated to have been from Canada. Non-US revenue share was down marginally from 13% in 2018 and in absolute revenues (-7%) due to a fall in Canadian revenues (-8%), whereas revenue from other international markets was marginally up (+1%).

In early 2018 MEDITECH announced the release of its cloud-based EHR, Expanse. MEDITECH has since been rolling out its cloud-based EHR to new customers and replacing its legacy hosted Magic solution for existing customers. This will ease some of the costs and time associated with implementing the solution, which should make it more competitive. In addition, the data hosted on the cloud will make it easier to drive interoperability through a Health Information Exchange, further increasing its attractiveness for provider networks.

Implementation delays caused by COVID-19 contributed toward MEDITECH’s total revenue declining by 3% in 2Q 2020 (versus 2Q 2019). However, a strong international performance in 1Q 2020 (estimated revenue up by c.25%) was driven by new Expanse installations in Canada (including Ontario Mental Health Hospital), leading to 1H 2020 revenues rising by almost 10% (versus 1H 2019).

Approximately 2% of MEDITECH’s business comes from outside North America, a trend that has remained relatively unchanged for several years. As with Epic, Cerner and Allscripts, a significant proportion of its non-American business is in other English-speaking countries, such as the UK/Ireland (22 customers in the UK and 3 in Ireland – mainly public/private sector hospitals), South Africa (24 hospitals) and Australia (72 private hospitals). In the UK it is a second-tier vendor providing EHR solutions to a small number of NHS trusts (low double-digit). Despite a concerted push into the UK, with the acquisition of Centennial (its UK distributor and system integrator) and the official formation of MEDITECH UK in 2018, the number of trusts served decreased with Cerner taking Chester NHS Trust from MEDITECH in 2018.

The company has had considerable success in Africa, selling solutions in 12 countries including Botswana, Namibia, South Africa, Kenya, Nigeria, and Uganda. In September 2019, it partnered with Aga Khan University for a new 2020 deployment of Expanse in South African and Kenya, and subsequent deployment in Pakistan. Contracts in Kuwait and the UAE result in the whole MEA region accounting for a sizable share of its non-North American business.

MEDITECH’s international business mirrors its US business to some extent. It has one of the largest installed bases of hospitals worldwide, but predominantly small hospitals, and often in countries where spend per bed is low; it is also typically not upselling beyond core EHR, meaning that its international revenues, particularly when Canada is excluded, remain small.

Key Takeaways

In Signify Research’s latest global EHR analysis, it was estimated that the US accounted for nearly two-thirds of global EHR sales in 2019, so for these four vendors it must remain the key priority. However, the US is forecast to be one of the slowest growing EHR markets over the next five years as it approaches saturation, particularly for core-EHR products in the acute market. Further, the acute market in the US has now broadly consolidated around these four vendors meaning opportunities for gains in share through replacement is increasingly rare – the long tail has gone.

The geographic expansion offers a potential avenue to drive growth. However, it is not easy and there are plenty of pitfalls. Localizing solutions, acquiring local vendors, displacing local incumbents, aligning products to match government requirements and projects, and putting in place local implementation, project management, and support teams all require significant time and investment. Because of this, the global market remains highly fragmented and market share change is slow. However, for the big four discussed in this insight, ignoring the international opportunity will significantly limit long-term growth; so despite slow and sometimes painful progress, we expect it to remain a priority.


About Arun Gill, Senior Analyst at Signify View

Arun Gil is a Senior Market Analyst at Signify Research, a UK-based market research firm focusing on health IT, digital health, and medical imaging. Arun joined Signify Research in 2019 as part of the Digital Health team focusing on EHR/EMR, integrated care technology, and telehealth. He brings with him 10 years’ experience as a Senior Market Analyst covering the consumer tech and imaging industry with Futuresource Consulting and NetGrowth Consultants.

M&A Analysis: 3 Benefits of Siemens Healthineers’ $16.4B Acquisition of Varian Medical

M&A Analysis: 3 Benefits of Siemens Healthineers $16.4B Acquisition of Varian Medical

What You Should Know:

– Siemens Healthineers and Varian Medical announce a $16.4B deal in an all-cash transaction on 2nd August 2020.

– Deal expected to close in 1H 2021.

– Varian Medical will maintain its brand name and operate “independently”

– Siemens AG will drop holding in Siemens Healthineers from 85% to 72% as part of the transaction.


News of the deal between Siemens Healthineers and Varian Medical will have caught many industry onlookers off guard on Sunday evening. Flotation of the Healthineers business segment on the German stock market raised a few eyebrows back in 2017, but with Siemens AG retaining 85% of the stock, many observers postulated little change to the fortunes of the well-known business; an unwieldy technical hardware leader facing an uphill battle in an increasingly digital market.

However, the Varian deal has just made it very clear that Siemens Healthineers has emerged from the IPO with big ambitions and firepower to match. So, what does this mean for the future?

Win-win?

Three benefits of the deal are clear at first glance. Firstly, Siemens Healthineers will be adding an additional mature product set to its already strong modality hardware line-up. Radiation Therapy hardware (linear accelerators, or linac), is the lion’s share of Varian’s business, for which it is market leader holding over 55% of the global installed base in 2019. Combining this with Siemens’ extensive business in diagnostic imaging and diagnostics will create a product line-up that no major peer can today match. It also opens up opportunities for providing “end-to-end” oncology solutions (imaging, diagnostics, and therapy) under one vendor, a strong play in a market where health providers are increasingly looking to limit supply chain complexity and explore long-term managed service deals with fewer vendors.

Secondly, Varian is operating in a relatively exclusive market, with its only main competition coming from market peers Elekta and Accuray Inc. Demand for linacs has been consistently improving in recent years, with Varian suggesting only two-thirds of the Total Addressable Market (TAM) for Radiation Therapy has been catered for so far. The acquisition, therefore, opens a new growth market for Siemens Healthineers to offset the gradual slowing demand for its advanced imaging modality (MRI, CT) business, a more competitive and mature segment. The adoption of Radiation Therapy in emerging markets such as China and India is also well behind advanced imaging modalities, offering new greenfield opportunities near term, a rarity in most of Siemens Healthineers’ core markets.

Thirdly, Varian has grown to a size where progressing to the next level of growth will require substantial investment in operations and new market channels. Revenue growth over the last five years has been patchy, though gross margin remains strong for this sector. If Siemens can leverage its far larger operational and sales network and apply it to Varian’s product segments, none of Varian’s current main competitors will have the resources to compete, unless acquired by another major healthcare technology vendor.

The Digital Gem 

While the Radiation Therapy hardware business has gained the most attention for its potential impact on Siemens Healthineers’ business, Varian’s software business is arguably its most valuable jewel, hitting almost $600m and 18% YoY growth in FY19.

Many healthcare providers have become increasingly beleaguered by the challenges of digitalization today, especially in terms of complex integration of diagnostic and clinical applications across the healthcare system. This frustration is especially common in Oncology, which sits at the convergence of major departmental and enterprise IT systems, including the EMR, laboratory, radiology, and surgical segments.

Changing models of care provision towards multidisciplinary collaboration for diagnosis and care have only intensified focus on fixing this issue, with some preferring single-vendor offerings for major clinical or diagnostic departments. The Varian software suite is one of the few premium full-featured oncology IT portfolios available today, competing mostly against main rival Elekta, generalist oncology information system modules from EMR vendors (few of which have the same capability) and a host of smaller standalone specialist IT vendors.

For Siemens Healthineers, the Varian software asset is a great fit. Siemens has for some time been gradually changing direction in its digital strategy, away from large enterprise data management segments towards more targeted diagnostic and operational products. This process began with the sale of its EMR business to Cerner for $1.3B back in 2015, with notably reduced marketing focus and bidding or deal activity on big imaging management deals (PACS, VNA etc.) in North America in recent years.

Instead, Siemens Healthineers has channeled its digital efforts on three main areas where it has specialist capabilities: advanced visualization and access to artificial intelligence for image analysis; digitalization of advanced imaging hardware modalities, including driving efficiency for fleet management and radiology operations; and lab diagnostics automation. While still early in this transformation, this approach is tapping into the main challenges facing most healthcare providers today; improving clinical outcomes at a net neutral or reduced cost, better managing and reducing Total Cost of Ownership (TCO), and implementing autonomous technology to augment clinical and diagnostic practice.

Assuming integration with Siemens’ broader portfolio is not too bumpy, it is already clear how the different software assets of the Varian business sit well with Siemens’ digital strategy. The Aria Oncology Information System platform will provide an entry point for Siemens to build on clinical outcome improvement in Oncology (along with Noona/360 Oncology) while also integrating diagnostic content from the Siemens syngo imaging and AI-radiology applications. Further, with growing attention on operational software to support modality fleet services and radiology operations, Siemens could translate this business into RT linac fleet management, an area currently underserved.

With no competing vendor today able to match this capability in Oncology IT, the potential long-term benefits for Siemens’ digital strategy with Varian far outweigh the risks of integration.

From Morph Suits to Moon-shots

As alluded to in our introduction, perhaps most intriguing is the bullish signal Siemens Healthineers has made to its customers and the wider market about its future.

The Healthineers 2025 strategy identified three clear stages of transformation, with “reinforcing the core portfolio” the key aspect of the 2017-2019 post IPO. In the second phase “upgrading” the business focused on pushing up growth targets and earnings per share across all segments while adding capabilities in allied markets.

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Judged against the criteria for the “upgrading” phase, the Varian deal has ticked all the boxes, perhaps clarifying why Siemens was willing to pay a premium:

The scale of the deal has also reinforced that the gradual untethering of Siemens Healthineers from its corporate parent Siemens AG is bearing fruit, both in terms of flexibility to deal-make and the ability to use the financial firepower of its majority shareholder for competitive gain.

The deal, once completed in 1H 2021, also now puts Siemens Healthineers in an exclusive club of medical technology companies with annual revenues above $20B, with a potential position as the third-largest public firm globally (based on 2019 revenues, behind Medtronic and Johnson and Johnson).

It is therefore hard to argue that the Varian acquisition can be viewed as anything but positive for Siemens Healthineers. Given the current impact of the COVID-19 pandemic and expected challenging economic legacy, the growth potential of Varian will help to smooth the expected mid-term dip in some core business over the next few years.

Yet it is the intention and message that Siemens Healthineers is sending with the Varian acquisition that has is perhaps most impressive; despite the turmoil and challenges facing markets today, it fundamentally believes in its strategy to reinvent its healthcare business and target precision medicine long term.

Its major competitors should sit up and take note; Siemens Healthineers is fast re-establishing itself as a leading force within healthcare technology. The morph suits of the “Healthineers” brand launch was just one small step on this journey; the Varian acquisition is going to be one great leap.


About Steve Holloway 

Signify Research_Steve Holloway

Steve Holloway is the Director at Signify Research, an independent supplier of market intelligence and consultancy to the global healthcare technology industry. Steve has 9 years of experience in healthcare technology market intelligence, having served as Senior Analyst at InMedica (part of IMS Research) and Associate Director for IHS Inc.’s Healthcare Technology practice. Steve’s areas of expertise include healthcare IT and medical Imaging.