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Philips & Spencer Health to Extend Joint Solution to Europe

Zacks Equity Research

Koninklijke Philips PHG recently announced that it is expanding partnership with Spencer Health Solutions to bring their medication adherence solution to patients across Europe.

Technological solutions can help improve medication plan compliance for patients and care providers. Moreover, medication adherence reduces the chances of hospitalization and doctor visits, leading to lower healthcare costs for patients. Per OECD, nearly 200,000 avoidable deaths and preventable healthcare costs of €125 billion annually is recorded in Europe due to non-adherence. This calls for immediate measures and solutions to curb this trend.

Philips and Spencer already have an existing partnership in the United States. This benefits care givers and patients by providing a digital solution that connects them, simplifies delivery of medicine and care, while cutting costs of non-adherence-related medical complications.

The Spencer Smart Hub, which is widely used by patients on multiple medications in the United States, is set to hit select European markets including Austria, Belgium, Germany, Luxembourg, Netherlands and Switzerland in the fourth quarter of this year.

The Spencer Smart Hub is part of a Philips solutions portfolio of its connected care business that remotely manages and supports patients in their homes and connects them with care givers when needed.

This platform has high medication adherence rates and patient engagement in the United States. According to a case study, patients using Spencer Smart Hub adhere to medications 95% more than non-users, on an average. This speaks of the success of the platform in the largest economy of the world, and makes us optimistic about its success in Europe as well.

Move to Withstand Headwinds?

Shares of Philips have tumbled 23% year to date against the subindustry’s rally of 34.7%. This has been due to various reasons, including rising raw material prices, which is hurting Philips’ ability to sustain competitiveness in the markets it operates in.

More importantly, tariffs due to the ongoing trade war between the United States and China is hurting its profitability. Moreover, management expects trade-related tariffs to have a negative net impact of €45 million in 2019. This does not include potential U.S. batch four tariffs that will lead to additional €20-million headwind in the year, if made effective immediately.

Recently, Philips, in a preliminary update stated that its connected care business witnessed a decline of 4.5 basis points in adjusted margin during the third quarter. The company attributed the decline to tariffs and a delay in the impact of mitigating actions, factory under-coverage as a result of lowered production levels, and an adverse product mix impact.

Although this doesn’t bode well for the Connected Care, the latest move to extend its successful partnership to Europe is expected to boost the segment's top line in the long haul.

Zacks Rank & Stocks to Consider

Philips currently carries a Zacks Rank #3 (Hold).

A few top-ranked stocks in the broader technology sector are Alteryx, Inc. AYX, Benefitfocus, Inc. BNFT and Five9, Inc. FIVN, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, Benefitfocus and Five9 is 17.62%, 20% and 10%, respectively.

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