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Philips Snaps Up Irish Digital Pathology Startup PathXL

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Koninklijke Philips N.V (PHG - Free Report) expanded its fast-growing digital pathology business with the acquisition of Belfast, Northern Ireland-based PathXL, specializing in digital pathology image analysis and tissue pathology. This move complements Philips’ drive to support medical institutions in their transition from microscopy-driven workflows to digitized pathology workflows.

Philips’ shares rose 1.8%, as investors cheered the company’s initiative to increase its digital pathology offerings further. The financial details of the transaction were kept under wraps.

The Acquiree

PathXL provides a range of digital pathology software applications to research and education sections of pathology and bio-pharma markets.

Pathology involves the examination of patient tissue samples and plays a pivotal role in the diagnosis and treatment of a broad range of diseases, including cancer. Essentially, PathXL specializes in software that improves the analysis of cancer tumors.

Its image analysis and tissue pathology software will complement Philips' Digital Pathology Solutions portfolio, specifically its IntelliSite Pathology Solution. In fact, their pooled capabilities will aid them in offering superior, integrated technology that will allow more medical institutions to adopt digital pathology workflows.

Digital Pathology: A Fast Growing Segment

In the current scenario, the demand for pathology services far exceeds the supply of expert pathologists. Digital pathology can fill this gap by assisting pathologists in analyzing large clinical datasets more quickly by using image analytics, while improving the accuracy and quality of the diagnosis. The technology also has the potential to help create new therapies, indicating huge growth prospects for the segment.

This high-growth segment is currently a top priority for Philips, which has been committed to focusing its resources on healthcare technology since the past couple of years. In fact, the company’s CEO Frans van Houten said that its digital pathology business is actually doubling every year.

Just last year, Philips revealed that its LabPON was the first clinical pathology lab to go fully digital, i.e. all tissue samples at the lab are examined digitally.  Philips also partnered with Inspirata to develop digital pathology analytics and workflow.

This latest acquisition will enable Philips to cater to wide-ranging needs in computational pathology, education, workflow solutions and image analytics.

Philips: A New Brand

Philips is still known as one of the world’s largest lighting manufacturers, a legacy it built over a hundred years. However, the Dutch conglomerate spun off part of its iconic lighting division in an IPO last month, as part of its multi-year restructuring efforts.

The decision was rooted in the low margins and limited growth prospects of the lighting business, especially in comparison with its more lucrative and fast-growing health technology business, which competes with Siemens AG and General Electric Company (GE - Free Report) .

Of late, Philips has undertaken numerous initiatives to expand its healthcare business, which is gaining rapid momentum and has emerged as one of the company’s primary growth drivers. The investment in PathXL will further strengthen its digital pathology offerings.

However, the company has been facing tough times recently, with escalating taxes and restructuring charges burdening earnings. The company projects discontinued operations and separation costs in the range of €200–€300 million and restructuring costs of €50 million, which will significantly hurt earnings.

Also, challenging market conditions, coupled with mixed outlook in China, Russia and Latin America, continue to exert pressure on this Zacks Rank #4 (Sell) stock.

Some better-ranked stocks from the same space include Jason Industries, Inc. and Kopin Corporation (KOPN - Free Report) , both holding a Zacks Rank #2 (Buy).

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