IBM plans to sell its imaging and public health software along with Watson Health’s data and analytics business, the company said Friday.
The tech conglomerate and private equity firm Francisco Partners have signed a definitive agreement and expect the deal to close in the second quarter, subject to the usual regulatory approvals. The deal, whose financial terms were not disclosed, includes IBM medical imaging and healthcare software, Merge Healthcare and Phytel.
IBM has gradually sold off parts of its AI-powered Watson Health venture, analysts said, illustrating the difficulty of applying promising technologies to a highly regulated healthcare industry. But IBM’s “mistakes” should not diminish the potential of AI in healthcare, industry observers say.
The IT sector chronically underestimates the complexity of human disease by defining healthcare as a “big data” problem rather than a human problem, said Jeff Goldsmith, founder and president of consulting firm Health Futures.
“I bet IBM spent $6 billion on this before it started buying up related businesses to cover up the underlying failure,” he said, describing Watson Health as a “huge corporate embarrassment” that left promises broken. “I have no idea how much the remaining Watson Health businesses are worth, and I don’t know anyone who does.”
Under the agreement, the current management team will continue to perform similar functions in the new, separate company serving existing clients.
The news comes after IBM sold three components of its Watson Health portfolio to group purchasing organization Vizient in 2020: ActionOI, CareDiscovery and Market Expert.
“If IBM can get a fair price for Watson Health, we think it’s a wise decision to forgo this asset given the significant barriers to adoption in the healthcare industry,” Julie Bhusal Sharma, equity analyst at Morningstar, wrote in an email. Modern healthcare.
IBM acquired Truven Health Analytics in 2016 for $2.6 billion, adding more than 8,500 clients to the Watson Health portfolio, including US federal and state government agencies, employers, health insurance plans, hospitals, clinicians, and life sciences companies.
This acquisition follows a 2015 purchase by Merge Healthcare, which at the time was used by 7,500 healthcare providers to collect and analyze medical images. IBM also acquired Phytel healthcare software in 2015, as well as Explorys Cleveland Clinic, a cloud-based application for clinical integration, risk management, treatment cost measurement and alternative payment models.
The “related assets” of Merge and Phytel are part of a deal with Francisco Partners, according to an IBM spokesperson who declined to confirm or deny Explorys’ involvement in the sale. In its two decades of operations, Francisco Partners has invested in over 400 technology companies, including eSolutions, Capsule, GoodRx and Zocdoc.
These deals have partly fueled the buzz around IBM Watson Health’s AI tool for cancer treatment, Watson for Oncology. But he reportedly had difficulty navigating the health system’s electronic health records, leading to internal disputes and a change in leadership.
“Several early mistakes were made in oncology that did not work out as expected and failed to win the trust of clinicians. Perhaps IBM took on something big and bold and it didn’t work out,” said Paddy Padmanabhan. founder and CEO of Damo Consulting, noting highly public disputes with MD Anderson and Memorial Sloan Kettering cancer centers. “The whole (IBM Watson Health) was supposed to be more than the sum of the parts, but now the parts seem to be worth more than the whole.”
Google, which has expanded its relationships with health care providers such as Mayo Clinic, and Amazon, which recently launched its pharmacy delivery service and expanded its health care for employers, have done better than Watson Health in recent years, analysts said. Healthcare-backed Truveta continues to receive support in its efforts to host de-identified medical records, images, and genomics on the Microsoft Cloud for Healthcare.
But the progress of most tech companies is slower than expected, given the strict healthcare regulatory environment, among other factors, said Morningstar’s Bhusal Sharma.
Oracle’s proposed $28.3 billion acquisition of Cerner likely forced IBM to rethink its overall Watson Health strategy, said Andrew McDonald, head of healthcare consulting at LBMC.
“IBM is not a big player in healthcare and those early mistakes didn’t help them. In the end, they were unable to effectively use the investment, and there was no return on investment,” he said. “I think at this stage IBM is just getting rid of any assets that could hurt its reputation, and any capital it can get back will be good with a potential refocusing of its current healthcare game plan.”
IBM Watson Health may have struggled to operate under the umbrella of a larger company, Padmanabhan said. But its dismantling should not discredit the progress of artificial intelligence in healthcare, he said.
“IBM’s decision to sell Watson Health’s assets is not an indictment of the prospects for AI in healthcare,” he said, adding that AI was one of the top technology investments for healthcare systems in 2021. “There are issues with data quality and bias. AI in healthcare, but there is a bigger story about the IBM experience and how it should impact the next iteration of AI in healthcare.”