BBI Contributing Editor
ISSAQUAH, Washington With the divestiture of Spacelabs Medical (Issaquah, Washington) by GE Healthcare (formerly GE Medical Systems; Waukesha, Wisconsin) to OSI Systems (Hawthorne, California), Spacelabs is again independent and ready to compete on its own in the highly consolidated worldwide patient monitoring market.
The agreement for the sale of Spacelabs to OSI, announced early in the year, is a result of an agreement worked out between General Electric (Fairfield, Connecticut) and antitrust regulatory agencies in Europe, Canada and the U.S. last summer. The U.S. Department of Justice and European Commission made the spin-off of the Spacelabs business, then owned by Instrumentarium (Helsinki, Finland), a prerequisite before they would sign off on GE's acquisition of the Finnish firm, which closed last October.
In addition to selling Spacelabs, GE also had to agree to provide the acquirer of that firm with the rights to distribute and market certain products it was acquiring in the Instrumentarium deal, notably perioperative anesthetic gas technology from Instrumentarium's Datex-Ohmeda (also Helsinki) business.
With the integration of Datex perioperative gas technology for the next decade and no more questions about its ownership or stability, Spacelabs is poised to re-emerge as a vibrant and growing competitor, first in the North American market and in time in Europe as well.
Drawing senior managers from the successful Datex-Ohmeda organization, and divorced from the structure and management style of GE Medical Systems, Spacelabs has undergone positive and noteworthy changes.
Richard Atkin, former president of Datex-Ohmeda's U.S. operations, and his team of sales, marketing and manufacturing managers already are making important changes at Spacelabs. In many ways Spacelabs had been an independent, separate entity for months inside of GE Medical since it became apparent that the latter firm's merger with Instrumentarium could not be approved if Spacelabs were included.
While Greg Lucier, former president of GE Medical Information Technologies, made public statements about GEMS continuing to sell Spacelabs products in competition to existing GEMS products, in private the Spacelabs folks were separated so that they could be spun out when the time came that regulators balked at that assertion.
Even as it was sheltered inside of the gigantic GE Medical organization, Spacelabs was busy engineering many enhancements to its broad monitoring product line, some of which already were being announced even as the ink was drying on the divestiture agreement with OSI.
The first items to trickle out were new Flexport interfaces to the popular Puritan Bennett (Pleasanton, California) 840 ventilators and Novametrics (Wallingford, Connecticut) noninvasive cardiac output (NICO) devices. Then came the announcement that Spacelabs was releasing the first new WMTS telemetry to work in the upper-part (1.4 GHz) of the new WMTS band. Spacelabs had been the first company to deliver patient-worn telemetry that worked in the lower-part (608-614 MHz) of the band, only a couple of months after the Federal Communications Commission created this protected spectrum for the medical community in June 2000.
This new product increases the total channels of telemetry Spacelabs can offer by 300, almost twice the number the market leader, Philips Medical Systems (Andover, Massachusetts), offers in the same WMTS band, neutralizing the position of GEMS as being the one company that could offer more than 500 channels of WMTS telemetry. Moreover, because this new telemetry was designed by the same company that designed the existing WMTS telemetry, it works with all of Spacelabs' monitors, trending devices and network workstations a feat that GEMS took more than two years to accomplish following its September 2001 acquisition of Data Critical (Bothell, Washington), and is only now delivering in the early part of 2004.
Indeed, this is a key point. Of the top three patient monitoring companies Philips Medical, GE Healthcare and Spacelabs only Philips and Spacelabs offer a broad product line with consistency across the entire line in user interface and with the ability to mix different generations of products (existing and new ones) in one integrated system that works together.
If both of these companies can make North American hospitals aware of this distinction, it could position them to be "sole source" suppliers to those hospitals who look for one vendor to provide monitoring across all clinical areas. While GEMS can certainly provide the breadth of monitoring for all clinical areas, the individual monitors a mixture of old Marquette Medical, Critikon, Danika, Data Critical and now Datex-Ohmeda devices have vastly different user interfaces and network compatibilities.
Spacelabs also has announced an expansion of its monitoring network, both adding more nodes and adding an "alien monitor" interface capability. This is a "black box" that sits on a Spacelabs network and "talks" to one specific brand of non-Spacelabs monitors. The first such brand that was implemented was Datex-Ohmeda, allowing these OEM anesthesia monitors, which GEMS is providing to Spacelabs, to look from a network point of view, as if they are native Spacelabs monitors.
However, there is nothing in this approach that limits Spacelabs to just interfacing Datex-Ohmeda monitors. It could just as easily develop a black box that speaks to Philips or GE or Draeger monitors as well, which opens some interesting doors for hospitals looking to integrate monitoring on one network across a variety of clinical units that have different vendors installed.
Taken together, these product enhancements and new product announcements are more like a stream than a trickle, and if the engineering team at Spacelabs remains on track, there will be a few more surprises for competitors yet this spring. By providing such enhancements, Spacelabs is making a clear statement to its installed customer base that "we have not 'dead-ended' you; there are new products and new systems announced and coming to protect your investment in your Spacelabs system."
It also is telling its competitors, "Open season on raiding Spacelabs' installed base is over." In fact, competitors had best take a look at protecting their own installed base, because not only is Spacelabs shoring up its installed base, but it has recently been winning some significant orders away from major competitors.
One such recent win was a multi-year, multimillion-dollar deal at the University of Illinois Medical Center (Chicago, Illinois) for monitoring, where Spacelabs displaced Philips. It also beat out GEMS and Draeger. The latter firm presumably showed its new monitors, first seen at last fall's MEDICA show in Germany and currently being fit into the existing Siemens Infinity product family. GE Medical probably was not showing its new monitors, as they won't be available soon enough to meet the first phase of the implementation plan of the medical center. Nonetheless, Spacelabs beat out three vendors, two of which were showing their latest monitoring technologies.
We suspect that Spacelabs will not simply settle for fighting the top competitors, but will continue to attack the next level of players in the sector, particularly Datascope (Mahwah, New Jersey), Draeger (Telford, Pennsylvania), Welch Allyn (Skaneateles Falls, New York) and Invivo (Pleasanton, California), which is in the process of being acquired by Intermagnetics General (IGC; Latham, New York).
Economies in manufacturing introduced by Atkin's team are both reducing costs and shortening the build time of Spacelabs products. This allows Spacelabs to prevail in situations where a tight delivery or lower prices (offered by smaller competitors) would normally disadvantage top-tier competitors. Spacelabs can build monitors in four to six days, not four to six weeks, with its new manufacturing processes and actually improve quality and reliability as well.
But the most significant change at Spacelabs is not any of the above. It is in management style. The last remnants of the Carl Lombardi era (chief executive officer in Spacelabs' earlier incarnation as an independent company) are gone and have been replaced with a Six Sigma attitude of supporting its customers; something that its recent parent apparently never got around to in its own Six Sigma program.
Spacelabs dubs this its "Genesis" program, seeing it correctly as the origin of a new, customer-responsive company that puts the customer first. Spacelabs is going back to its existing customers and treating both this group and its new customers with respect, concern and an attitude of helpfulness. As a result, its service perceptions are rising from the near-bottom position that independent service surveys from several companies show GEMS occupied last year in the monitoring arena. No more "first responders" in Malaysia instead, a friendly voice in Issaquah.
Given both the strengths of its engineering pipeline and more importantly, its new focus on making customers happy and establishing long-term relationships with them, Spacelabs appears to be well-positioned to regain its market position and move ahead in 2004 and 2005, and well-equipped to take advantage of competitive opportunities that transitions by larger and smaller competitors alike could afford it.