Image credit: GE Healthcare booth, RSNA 2016, Fine Design Associates
On January 26th, General Electric published its financial results for Q4 2020. These provide some insight into the sales performance of its healthcare business. The results show that both sales growth and profitability weakened during the quarter, although a significant proportion of this was driven by tough comparables due to the disposal of its BioPharma business in March-20. During the fourth quarter, overall sales revenue from the healthcare business reached $4.8 bn, compared with $5.4 bn during Q4 2019, a decrease of approximately -11% year-on-year. When excluding the BioPharma business, revenues were +6% higher organically. This took cumulative 2020 sales revenue to $18.0 bn, compared with $19.9 bn during 2019, a decrease of approximately -10% year-on-year. Overall orders from the healthcare business were also materially lower. During the quarter, orders reached $5 bn, compared with $6 bn during Q4 2019, a decrease of approximately -15% year-on-year. When excluding the BioPharma business, orders were +1% higher organically. This took cumulative 2020 orders to $18.7 bn, compared with $21.2 bn in 2019, a decrease of approximately -12% year-on-year.
When excluding the BioPharma business, quarterly healthcare revenues were +6% higher organically. This organic sales growth was driven by higher equipment sales which grew by approximately +10% year-on-year and accounted for approximately 55% of total revenues. Quarterly sales revenue originating from services grew by approximately +2% year-on-year. Quarterly sales revenue from the healthcare systems business were +7% higher, offset by a -1% sales contraction from Pharmaceutical diagnostics business.
The reportable segments for the healthcare business have recently been changed due to the disposal of the BioPharma business. The healthcare business was previously segmented into ‘healthcare systems’ (HCS) and ‘life sciences’. The life sciences segment no longer includes the BioPharma business and has been renamed to ‘pharmaceutical diagnostics’ (PDx). During the fourth quarter, sales growth was driven by higher revenues from the HCS segment, partially offset by lower sales from the PDx segment. Total sales originating from the HCS segment reached $4.27 bn, compared with $3.98 bn during Q4 2019, an increase of approximately +7% year-on-year. Total sales originating from the PDx segment reached $465m, compared with $471m during Q4 2019, a decrease of approximately -1% year-on-year. This took HCS cumulative 2020 sales revenue to $15.4 bn, compared with $14.63 bn during 2019, an increase of approximately +5% year-on-year.
During the Q4 earnings call, Carolina Dybeck Happe, CFO and Senior VP commented: “The Healthcare Systems market remained dynamic with elevated demand in COVID-19-related equipment, offset by softer demand for non-pandemic products. Regionally, public health care markets such as Europe and China have been stronger than private markets, particularly in the United States, India, and Latin America. During the fourth quarter, global procedure volumes were relatively stable with some regional variability as care providers postponed elective procedures due to COVID-19 spikes … In Healthcare Systems, orders grew 1%. Europe was up low double-digits, and China was up low single digits. Services saw consistent growth, up low double digits, as we continued to provide critical support to our customers … In PDx, demand continues to recover to pre-pandemic level and orders were down 1%, but up slightly sequentially. Healthcare revenue was up 6%. Healthcare Systems was up 7%. LCS had solid execution delivering a record number of ventilators. Non-pandemic related volumes were also positive as we converted Imaging backlog and Ultrasound orders this quarter. From a regional perspective, we saw strong growth in Europe and China. This year, China revenue was more than $2 billion, and up 11% in the quarter alone. U.S. revenue was more than $6.5 billion, up 2% for the year, including the U.S. Government’s ventilator order.”
About the healthcare systems segment
The HCS segment encompasses a broad suite of products and solutions used in the diagnosis, treatment and monitoring of patients. Its primary activity is the development, manufacturing, marketing and servicing of a portfolio of medical imaging solutions. This includes magnetic resonance (MR), computed tomography (CT), molecular imaging (MI), x-ray and ultrasound imaging systems. Sales revenue originates from both the sale of hardware and software as well as complementary services. The segment also encompasses Enterprise Software & Solutions (ESS) which includes enterprise digital, consulting and healthcare technology management as well as Life Care Solutions (LCS).
Recent partnerships and collaborations
- On January 10th, GE announced a $130m deal with GenesisCare to supply their global centres. This includes supplying them with imaging systems, including computed tomography, magnetic resonance, ultrasound, digital mammography, and other technologies and services.
- On December 13th, GE announced a strategic collaboration with TVM Capital Healthcare, a specialist healthcare private equity firm. The collaboration is to support and accelerate the growth of transformational healthcare companies across selected emerging healthcare markets in the ASEAN and MENA regions.
Recent developments in Ultrasound
- On October 22nd, GE announced its largest-ever ultrasound deal in the United States. This is an $11 million order by St. Luke’s University Health Network to install 76 ultrasound units along with automated reporting and processing systems estimated to save $300k per annum in efficiency gains.
- On October 12th, GE announced that it received FDA clearance for its Vivid™ Ultra Edition, an AI-enhanced cardiovascular ultrasound system. This enables the efficiency capabilities of its artificial intelligence technology (AI) to its entire Vivid cardiovascular ultrasound portfolio.
Recent developments in X-ray
- On November 25th, GE shared that it’s Critical Care Suite 2.0 is helping critical COVID-19 patients.
- On November 20th, GE announced its acquisition of Prismatic Sensors AB, a Swedish start-up specialising in photon-counting detectors for computed tomography.
- On September 1st, GE announced that it’s AI algorithms used to detect pneumothorax have been licensed by Health Canada to be embedded onto its mobile x-ray devices.
Recent developments in Mammography
- On October 20th, GE announced an industry-first contrast-enhanced guided biopsy solution branded Serena Bright™. This solution will enable clinicians to conduct Contrast Enhanced Spectral Mammography (CESM) biopsy using existing mammography equipment to increase diagnostic accuracy and avoid long waiting times for follow up MRI biopsies.
US-China Trade Tensions
The trade tariffs between the US and China continue to result in increased product costs for GE, particularly for medical equipment and renewable energy systems. The company continues to take mitigating actions which include relocating manufacturing as well as parts of its supply chain outside of China. The US-China trade tensions and their impact on the GE business was not a talking point during the Q4 earnings call. The net impact from tariff-related actions was previously estimated to be between $400 and $500 million across the Group, with the majority of this shouldered by the healthcare and renewables businesses. Although there has been some moderation in tariffs both in the U.S. and China, they are likely to continue to have a material impact on underlying profitability.