Sectra plans for PACS future without Philips

Plans by Royal Philips Electronics to purchase U.S. PACS company Stentor (DI SCAN 7/18/05) caught the current supplier of Philips' PACS software off guard. But Swedish IT specialist Sectra is now treating the impending dissolution of this long-standing partnership in a more positive light.

The company began delivering PACS software to Philips Medical Systems in 1997 under a nonexclusive partnership agreement. While Sectra continued to forge similar deals with other local and global partners, these partnerships were smaller. Sectra had also deliberately shied away from partnerships that might have competed directly with Philips' interests. At the time of the acquisition announcement, between 25% and 35% of Sectra's total business volume could be attributed to new software license sales through Philips.

The relatively open nature of the relationship meant there was always a chance of Philips buying a more secure stake in the PACS market, said Dr. Jan-Olof Brüer, president and CEO of Sectra. Yet the larger partner had signaled no dissatisfaction with either Sectra's PACS or the arrangement itself prior to bidding for Stentor.

"There have been many, many times when rumors have been going around that Philips should buy its own PACS, and over the years, Philips has even bought companies that had PACS products in their portfolios," Brüer said. "So in one sense, the acquisition came as a surprise, but it is a situation we have been living with for a very long time."

More than 650 hospitals and healthcare institutions currently run a Sectra PACS, many of which came through sales made by Philips. This includes more than 250 U.S. installations and 320 sites in Europe. Another 50 Sectra PACS are in operation in Brazil, Puerto Rico, Hong Kong, Japan, Qatar, Singapore, Turkey, Australia, New Zealand, and South Africa.

Sectra has been particularly dependent on its relationship with Philips for U.S. PACS sales. Consequently, revenues in this marketplace are likely to be hit first. Sales to Europe and Asia will also be affected over time, though Sectra is not expecting Philips to deploy the Stentor PACS in these regions immediately.

PACS sales to Scandinavian countries, which are handled directly by Sectra, will be unaffected. The Linköping-based company currently holds a greater than 50% market share in this region, with more than 120 hospitals running its software.

Sectra will continue to fulfill its existing supply contracts with Philips. This includes exclusive delivery of PACS software for public hospitals across London. Service contracts through Philips will also be honored - the longest is scheduled to run until 2016. A plan to establish fresh service agreements directly with clients is also under consideration.

"We have been contacted by many existing Philips customers who are asking us to create a secondary, more direct service offering for our PACS products," Brüer said. "We feel we could probably build quite a strong support offering, offering better service and at a lower price."

Despite the shock of losing its "best friend" in PACS, Sectra is not going to abandon its strategy of partnering with OEMs. Steps to increase activities with existing U.S. partners have already been taken. The company also refuses to rule out possible cooperation with another global player.

"We have a very positive view of partnerships because it brings a win-win situation," Brüer said.

Sectra may actually be able to improve its PACS offerings now that it is no longer tied to using certain components, Brüer said, as was the case under the arrangement with Royal Philips. Sectra will also continue to benefit from its growing digital mammography business, which includes a dedicated mammography PACS and the pioneering MicroDose Mammography system.

"It is always very sad whenever you break up a long-term relationship, and there is a very strong change in how your future is going to look. But you also have to plan your opportunities once you are not limited by that old relationship," he said. "There is more than the Philips PACS business in our portfolio."