Philips looks to boost healthcare IT presence with Stentor acquisition

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Philips Medical Systems this week announced it is stepping up its healthcare IT capabilities and particularly its PACS offerings with the proposed acquisition by its parent, Royal Philips Electronics, of web-based PACS provider Stentor, Inc. The transaction, which was announced yesterday, is valued at approximately $280 million. Stentor shareholders have already approved the agreement and transaction.

In 2003, Philips embarked on its vision for healthcare IT through the launch of an alliance with Epic Systems Corp. - a specialist in IT systems for creating an EHR for sharing patient information across hospitals. By merging with Stentor, Philips will be able to equip EHRs with diagnostic quality medical images that can be viewed throughout the hospital and via the internet, Philips said yesterday.

Stentor's U.S. market reach -- with more than 200 installations in 100-plus leading healthcare markets -- combined with Philips global distribution reach will make for a powerful combination, said Stan Smits, head of Medical IT for Philips Medical Systems, during a webcast detailing the acquisition.
Smits said the combination of Philips and Stentor makes 1,600 cardiology and radiology PACS installations worldwide, which is a "big footprint from which to start."

Stentor has been on a steady growth path in recent years. The company has said it expects 2005 sales to increase as much as $50 million with 2006 sales annual growth projected at 50 percent. Growth is being driven by the company's 'pay-per-study' and 'try-before-buy' business model. Stentor also has been ranked No. 1 by KLAS in 2003, 2004, and mid-2005. Built on its iSyntax technology, Stentor offers the iSite PACS product line that includes the iSite Enterprise web-based image distribution system, the iSite Radiology diagnostic reading and iVault always on-line medical image storage. Stentor was founded in 1998 and as of March 31st employed 144 people.  
Once acquired, Stentor will become part of Philip Medical System's Healthcare IT business with headquarters in Brisbane, Calif., and will become the global headquarters of Philips' overall PACS business, the companies said.

"Stentor is an exceptional company with very talented people and unique technology that will significantly strengthen our position in healthcare IT," said Jouko Karvinen, President and CEO, Philips Medical Systems, in a press release. Karvinen added, "[The merger] gives us exactly what we want: world-class technology already recognized and appreciated by our customers, clear and immediate synergies with our imaging business and an opportunity to leverage the Philips world-wide resources. Philips is strongly committed to the support of its current customer base and will work with these users to let them benefit from the Stentor advantages."

"In the healthcare industry, Philips is known for its high-quality medical equipment and for its commitment to customers - an approach we value," Stentor President Oran Muduroglu said. 

"We can now extend Stentor PACS outside of the radiology department and into other areas of the hospital where conditions like cancer and heart disease are treated," Muduroglu continued. "We are very excited about what this means for all of our current and future customers, as we combine our strengths in image and information management."

Philips current PACS partner, Sectra, yesterday also issued a release stating that their relationship with Philips will soon change as a result of this acquisition. Since 1997 the two companies have had a global sales arrangement under which Philips has sold Sectra's software for processing digital x-ray images worldwide. However, with the purchase of Stentor, Philips will now have its own ability to develop software for processing digital x-ray images, Sectra said.

"We have several project agreements with Philips that extend up to 10 years and this cooperation will successively be terminated," said Sectra President and CEO Jan-Olof Brüer. "We assess that the termination will impact on our sales and earnings in the current fiscal year. At this time, however, it is difficult to provide any reliable view of the financial effects, since this depends on how much time the termination will require."

The change provides Sectra the opportunity to review its sales channels, Sectra said. Currently, sales of Sectra PACS are handled on a proprietary basis in Scandinavia and other selected markets as well as through partners, of which Philips was the largest. Sectra's largest sales together with Philips have been in the U.S.

"Part of the sales for which Philips is currently responsible will be taken over by other partners that today are active in the same markets as Philips," said Brüer. "At the same time, we gain the opportunity to advance our positions and will increase our focus on own sales in important key markets, as we do today in Scandinavia, where we have captured more than half of the total PACS market."

With regard to the Sectra relationship, Philips' Smits indicated that all current customers and ongoing installations will be supported and be given access to the latest system upgrades from Philips. However, all new installations will be shifted to the Stentor system.

Another major PACS player and Stentor partner, IDX Systems Corp., could not be reached for comment regarding any change in its relationship with Stentor. Last November, IDX and Stentor renewed and extended their technology partnership for the delivery of integrated PACS until 2015. The partnership began in November 2000 at which time IDX's Imagecast PACS and Stentor's iSite PACS were developed with IDX's workflow technology and Stentor's imaging technology.

With regard to IDX, Smits made a brief reference to the companies' relationship with Stentor but did not specifically mention any definite change in their agreement. However, the reality of these acquisitions means that a wait-and-see attitude is appropriate.