Dive Brief:
- GE said on Thursday it expects its healthcare business to generate about $3.2 billion in operating profit this year and approximately $3.5 billion in 2023, which is in line with Wall Street estimates.
- Company executives provided GE's outlook for the $18 billion healthcare unit during Thursday's annual investor day. The company forecasts mid-single-digit growth for each year and a profit margin ranging in the high teens to 20%. GE Healthcare CEO Peter Arduini, who replaced Kieran Murphy in January, told investors the unit's focus is on precision health and helping clinicians to personalize diagnoses and treatments tailored to individual patients, with the aim of improving outcomes, productivity and workflow integration.
- The planned spinoff of GE's healthcare business, which has 48,000 employees, in early 2023 remains on track. Arduini made the case that once it is a standalone public company, GE Healthcare will be "faster, more agile" and enable growth acceleration on both the top and bottom line. However, at this point, business and regional segment details, stand-alone costs and capital structure are not yet available for the spinoff. "That's probably something we're going to give more clarity on a little bit later in the year," Arduini said.
Dive Insight:
When GE announced in November it was spinning off its healthcare business — in which the company will retain a 20% stake — the conglomerate said capital structures, brands and other details were to be determined later. Four months later, analysts appear to be growing impatient with the lack of available information.
At Thursday's investor day, Barclays analyst Julian Mitchell voiced concerns that the spinoff "is coming up quite soon" and the healthcare unit's "financial numbers for 2023 that were laid out" by GE "were ex-standup costs." Mitchell said investors want to know how large those costs will be next year to make sure there's no "shock" when initial guidance is provided.
"We're still early innings on that work," Arduini responded.
GE CEO Larry Culp, when asked in January whether the timeframe for the planned healthcare spinoff in early 2023 might be moved up, said the company needed to "go through the work over the next year to prepare this business to be independent," adding "there's a lot of legal, structural, financial, systems and the rest that we need to work through."
Still, GE, like the rest of the medtech industry, currently is grappling with more immediate macroeconomic concerns beyond the company's control.
GE's healthcare unit in late January reported that fourth-quarter revenue fell 4% to $4.63 billion because of continuing industry-wide supply chain shortages. At Thursday's GE investor event, executives said order demand remains strong despite supply chain constraints and mentioned Russia's invasion of Ukraine and the potential for disruption.
"There are a host of things that we do not know relative to the situation in [Ukraine]. There are too many uncertainties and it's probably premature to try to incorporate that today," Culp told investors, calling it a "precarious" time. The CEO said Russia represents less than 2% of GE's overall sales for all business units.
GE Healthcare's global reach includes 1 billion patients and 2 billion procedures annually, with about $1 billion spent on research and development in 2021 as the division continues to invest in growth while managing costs. Arduini on Thursday noted that the company's precision health capabilities are only at the midpoint of what's possible with diagnostics, therapies and monitoring technologies.
Arduini also said that GE Healthcare has experienced "strong demand" in 2022 and the company sees that continuing as precision health drives the need for more medical imaging in particular.
Roland Rott, CEO of Ultrasound at GE Healthcare, told investors that the market remains resilient at the mid-single-digit growth level and handheld ultrasound represents the fastest growing sector. With GE Healthcare's launch last year of its Vscan Air product, a wireless pocket-sized ultrasound, Rott contends imaging technology has the potential to transform care by moving outside the four walls of a hospital.
"The way that care is provided in our world has changed, not the least through COVID," Rott said, adding that handheld ultrasound with whole-body scanning capabilities "can pretty much go anywhere, even including the home."
In December, GE completed its $1.45 billion acquisition of surgical visualization company BK Medical in an effort to expand GE Healthcare's $3 billion ultrasound business. It aims to steer the business from diagnostics into surgical and therapeutic interventions — as well as minimally invasive and robotic surgery — as part of an end-to-end continuum of care offering.
With the BK Medical purchase, GE Healthcare for the first time is expanding into the operating room with surgical navigation to help surgeons make decisions in real-time during operations.
"BK Medical is highly complementary as an acquisition because we have not had significant presence in this space before," Rott said. Rott added that the move opens up opportunities in minimally invasive and robotic surgery in fast-growing areas of healthcare including neurosurgery, general surgery and urology.