The IFI Deal: GE HealthCare Acquisitions from the Patent Point of View

Breaking up a conglomerate is hard to do, but GE successfully spun off its healthcare business early this year. GE HealthCare wasted no time charting its own path and snapped up two companies of its own—Caption Health and IMACTIS. Were they good buys? The equity analysts can follow the money. We follow the patents, which help create the money. Here’s what we discovered.

GE Slimmed Down, GE HealthCare Beefed Up

There’s nothing like a combination of macroeconomic challenges—persistent inflation, higher interest rates, and geopolitical deterioration in 2023—to keep the chill on Wall Street activity. Especially in the M&A arena. For the third quarter of 2023, the value of global dealmaking fell 20 percent from the previous quarter, data from Pitchbook shows. The trend is similar, according to Dealogic stats. None of this is surprising, considering all the talk in the business press about the coming recession. When times are hard, companies naturally want to conserve cash to operate their current enterprises.

That’s not to say that dealmaking has ground to a halt. Breaking down 2023 deals by sector shows that at least in healthcare, the value of deals this year has exceeded the amount of those in 2022 year-to-date. In fact, one of the biggest transaction announcements of the year so far has been pharmaceutical giant Pfizer acquiring biotech firm Seagen for $45 billion.

Considering the counterintuitively robust environment for healthcare M&A, IFI CLAIMS, the industry’s most trusted patent data provider, decided to take a look at a couple of smaller, less-noticed healthcare acquisitions that occurred earlier this year by GE HealthCare Technologies (GEHC) from the patent perspective. Many investors concentrate most of their M&A due diligence on the ledgers. But unlocking the patent portfolio and processing expert analytics is just as important as opening up the books and running the numbers. After all, acquisitions don’t always occur purely for reasons surrounding the target’s current financial state. Frequently, the acquisition is inspired by a technology—often nascent—that is expected to be a future engine of growth. In fact, GEHC characterized one of its purchases—Caption Health, a company that applies AI to ultrasound technologies—as a tuck-in acquisition, which suggests that GEHC was targeting Caption’s unique technology.

First, a quick refresher. We won’t go into the long and winding tale of how GE, the iconic American conglomerate, lost its way over the past couple of decades. Plenty of ink has been spilled in the business press over the fall of this once-mighty company. For our purposes, it’s simply important to know that in recent years, GE announced that it planned to break itself into three independent companies: GE HealthCare, GE Vernova, which encompasses the energy businesses, and GE Aerospace.

GE HealthCare was the first to depart the GE family, and when it did, it went boldly. The company spun off at the start of this year, beginning its corporate life as a pure-play, stand-alone, publicly traded company by announcing a couple of acquisitions in quick succession: IMACTIS, a France-based company that has developed an ergonomic needle-guidance solution; and Caption Health. Terms of the deal were not disclosed, but the patent portfolios of these companies are public, and we thought it would be instructive to look at them from an investor perspective to try to ascertain GEHC’s strategy and also to determine whether and how these acquisitions are strengthening GEHC’s own technology position. In other words, is the company allocating its capital well when it comes to acquiring the technology of other companies.

And the notion of being seen as a tech company appears to be an important concept with GEHC. For one, the full name of the company is GE HealthCare Technologies. It trades on the NASDAQ, while its former parent trades on the New York Stock Exchange. And the day after the company spun off, it announced the hire of its first Chief Technology Officer: Taha Kass-Haut, MD, MS—former VP of Machine Learning and Chief Medical Officer at Amazon, where he led AI technologies. Looking back on its first year as an independent company, GEHC is leaning into AI. Last month the company announced a $44 million contract with a division of the Department of Health and Human Services to develop AI-aided ultrasound for diagnosing traumatic injury. The company is also collaborating on an AI algorithm with Mass General Brigham that reduces administrative challenges.

The GEHC corporate message is clear: it’s leaving behind the stodgier image of the wide-ranging, far-reaching corporate conglomerate parent, and focusing on the bleeding edge of medical technology. Let’s see if the patents match the company’s new sense of purpose.

GE HealthCare: Plotting the Patent Picture

A Subsidiary by Any Other Name is Still….GEHC

Tracking ownership of patents isn’t as simple as you’d hope. Corporations cultivate diverse brands, acquire companies, and do business all over the world under different identities. As a result, companies document patent rights under various names. GEHC, the new company spun off from GE, is what we call here at IFI the “Ultimate Owner” of all of the patents assigned under any of GEHC’s subsidiaries, currently numbering 103 different corporate identities. Why does any of this matter? The best patent searcher in the world can’t possibly capture the entire portfolio of a complex organization—an enormous problem in M&A when it comes to understanding the value of a company’s patents during the due diligence process.

That’s why IFI CLAIMS created its Names Service. Drawing from our deep involvement over seven decades in the proprietary and painstaking work of name standardization and normalization, IFI weeds through inconsistencies, consolidates an entity’s various licensed names and identities, corrects misspellings, removes punctuation and other special characters, and interprets each name iteration so that end users don’t have to systematize the data themselves. IFI also tracks corporate changes—such as Facebook’s name change to Meta in October of 2021—and updates them in the CLAIMS Direct platform, so that the changes are seamless to our clients.

But there is another advantage to using IFI’s Names Service, which we will illustrate in this report: the ability to break down the portions of the company that are contributing the most (or least) to overall technological innovation, and which are gaining or losing inventive momentum. The benefit of such detail: it allows financial professionals unbiased data points that help them determine where to put additional dollars to work. We’ll look at this concept further below as it relates to GEHC.

GE HealthCare Doesn’t Take Patents for Granted

It’s informative to take a look at the big patent picture first. Over the past 20 years, before the early January 2023 spinoff, GEHC applied for nearly 6,125 patents and received grants for nearly 4,000 of those applications. But the other thing that is interesting with such a long timeframe is that it gives you a sense of the trend. The patent heyday for GEHC looks to be in the early aughts (those granted patents, by the way, are on their last breath, if they haven’t already expired). Applications and grants then trended downward for more than a decade before starting to pick up again a couple of years ago. There could be many reasons underlying this trendline, but one thing is for sure: the decline coincides with a drawn-out period of well-documented turmoil at GE, all of which moved the company toward its current path of being split into pieces. The dip also coincides with GEHC’s main patenting subsidiary, GE Medical Systems Global Technology Co., trending steeply downward. Inventionally speaking, it looks like GEHC is starting to find its footing, and part of that is due to another subsidiary called GE Precision Healthcare patenting more recently (More on that below).

GE HealthCare Grants & Applications

Where in the World are GEHC’s Patent Filings?

The initial patent grant is merely a first step when it comes to patent protection. Patent holders also have to file for protection in the markets where they intend to operate. That’s expensive and time-consuming to manage, so companies tend to target the geographies where they expect to exploit their market advantage with patents. Over two decades, GEHC’s biggest market, by far, has been the U.S., followed by Japan, China, and the EP, which covers about 40 European countries. One caveat about the EP: companies often start with an initial EP filing that covers the entire European geography, before cherry-picking the countries where they’ll actually need protection. This is why France and Spain, for instance, have their own designations in the bar chart below, in addition to a designation for the EP.

Looking at the evolution of patents in the markets over the two decades, the trendlines give more details to GEHC’s patent story: Much of the decrease can be attributed to GEHC’s overall patent application and grant decrease shown in the chart above. But while the U.S. and China are increasing in recent years, Japan and Germany have headed further down. So a prudent investor should be asking the questions: Could the competition in those markets be too stiff? Or is there another reason why GEHC is not patenting as heavily there?

Top Filing Countries for GE HealthCare & Subsidiaries

Top Patented Countries Over Time

Assignee Name, Rank, and Patent Numbers

Drilling down to the subsidiary level of patent ownership gets into the more granular patent picture. One way to view the patent landscape is through sheer numbers. In that aspect, a holding called GE Medical Systems Global Technology has held the greatest number of GEHC’s patents over the past 20 years with nearly 9,000 grants. This division, from the perspective of total numbers, looks to be a golden child, so to speak, because it would stand to reason that it’s the most innovative segment of the company. GE HealthCare Ltd, in comparison, holds fewer than 2,000 grants, while GE Precision Healthcare LLC has under 1,200. It’s notable here that not every subsidiary is necessarily “owned” by GEHC because Carnegie Mellon University is listed as one of the assignees—clearly, GEHC, at some point, collaborated with the Pittsburgh educational institution on 26 patents.

The sum of the patents by subsidiary is just one way of looking at a company’s patent representation. Viewing inventions from other angles can showcase different—and illuminating—developments.

Top Patenting Subsidiaries

GEHC’s Modern Technology Marvels….

When it comes to the arenas in which GEHC invents, the company positively radiates. At least that’s what Cooperative Classification Code (CPC) A61B6/032 says; it covers equipment for radiation diagnosis and therapy. Magnetic resonance imaging (A61B5/055) is another of GEHC’s core competencies. The bar chart below shows the number of patents granted in the top 38 classification codes, while the tree map shows the relative magnitude of each technology covered by GEHC. To understand the importance of a classified technology, it’s essential to know that when an invention’s capabilities are categorized, the examiner generally attaches several CPCs to the patent because novelties draw from many technological fields. So when all of the classes of all the patents are depicted by a square in a tree map, it’s easier for an investor to determine how vital a technology is and whether the technology in the granted patents reflects the communications that a company puts forth about its product capabilities and how the company makes money. Imaging and ultrasound are the two largest business segments of GEHC’s four divisions, according to its most recent annual report. The concentration of CPCs of the company’s patents appear to reflect the financial metrics.

Top Patented CPC Codes

GEHC's Tech Tree Map

….And Those Marvels Over Time

With patents, time will tell. And as with other aspects of patent analysis, it’s enlightening to see how the development of particular CPC codes trend over the years in order to determine the technological progress or missteps of a company. From the perspective of GEHC, it’s clear that radiation diagnosis and therapy (A61B6/032) is core, so it’s a concern that patent ownership in that field took a long, steep drop, even as it looks as though the company is shoring up again in that area. This is where an investor should be asking questions. To wit: Why did that technology decline so dramatically? Is the decline company-specific or industry-specific? Is there simply not that much more invention to be had in that area? Will GEHC be losing much of its competitive advantage as those core patents expire? What is the company doing to regain an innovation foothold in the radiation technology area? Is it inventing internally? Or is it acquiring the inventions of smaller companies? We could go on.

Biomedical image inspection (G06T7/0012) looks to be a longstanding foundational technology. Classification codes around image analysis and enhancement using artificial neural networks and learning algorithms are quite new and growing. The earliest AI patents that we spotted in this analysis were applied for in 2018 by the GE Precision Healthcare subsidiary. One in the U.S. claimed novelty on a method for labeling the whole spine image using deep neural networks. Another international patent application covered a method for synthesizing magnetic resonance images with “a trained deep neural network to synthesize a contrast image from the quantification scan.”

Top Technologies Over Time

But a year earlier, in 2017, GE Precision Healthcare also filed patents using “machine learning,” but did not mention neural networks. Let’s get into the weeds for a moment: Although machine learning is related to AI, many experts debate whether machine learning, on its own, should be considered AI. Definitions are evolving, so we won’t argue the fine points of this. We just want to point out that GE Precision Healthcare was filing in this newer area (which some would consider AI), at that time with image recognition trained by machine learning, score generation using machine learning for prostate cancer diagnosis, and methods for machine learning diagnostic testing.

One last point on this subject: remember what we said above about GE Medical Systems Global Technology looking like the golden subsidiary based on number of patents? Considered over time and by classification codes covered, a different picture about innovation is emerging. Again, all of this information about patent stages invites questions and shows investors where they need to dig further in order to understand whether a company is ahead of or behind the curve and why the company is abandoning certain technologies or filling its white space with defensive positions and disruptive technologies.

GE Medical Systems Global Technology Co LLC's Top Tech

The Innovation Tell: What the Last Five Years Say About GE HealthCare’s Direction

Considering the patent panorama over decades tells one story. Focusing on the recent past gives another viewpoint of patent prospects. Where is GEHC’s focus now? The company is certainly concentrating on its core ultrasound and magnetic resonance imaging devices. But it’s also gaining ground on neural networks, training machines, and learning from image analysis. In short, they’re making progress on technologies associated with artificial intelligence, which appears set to upend the way the world does business. Ever since ChatGPT burst onto the scene early this year, AI has been the hot topic. A MarketWatch analysis of earnings calls transcripts this past March showed a 75% spike in references to AI, compared to the same period the year before. But plenty of companies are talking the AI talk to signal to financial markets that they’re on board with the future. One way to separate the hype from the real deal: patents. GEHC is actually patenting in the AI arena, though very recently. Although applications were made in 2018, the actual grants under AI codes do not appear until 2020. All of this is to say that if the company executives talk about all of the investment they’re making in AI, a diligent investor can know that they’re allocating their money where their mouth is by looking at the company’s patents and asking corporate leaders about patent numbers during earnings calls and roadshows.

Top Tech Over the Last 5 Years

The Competitive Edge: Which Companies Are Delivering the Most AI to Medicine?

Years before everybody started talking about AI and its potential to overturn the status quo in every industry, GEHC and other players in the field have been applying for patents in the AI arena. By far, the earliest AI pioneers are Siemens and Philips. In 1996, Siemens applied for a patent in Germany that covered an artificial network based process DE-19624301-A1; it was granted 10 years later. Also in 1996, Philips submitted an application for a patent using artificial neural networks to control the cycle of an intelligent battery DE-69633216.

How does GEHC stack up against competitors in more recent years? The pursuit of AI in medical equipment shows a tighter race, though Siemens appears to have an edge in the numbers of patents granted. The recent trajectory of Philips, however, looks a little stronger. GEHC, in comparison, is late to the game and has some catching up to do, but the company is clearly powering up in the area. AI-minded investors should keep watch on AI patents to see if GEHC continues to make strides and advance applications into its pipeline.

Competitive Landscape for Granted AI Patents

Competitive Landscape for AI Patent Applications

GE HealthCare’s Primary Patent Engine Is Out of Steam

We noted above what initially appeared to be an important subsidiary called GE Medical Systems Global Technology, which has held the greatest number of GEHC’s patents over the past 20 years. Gross numbers, while important, are just one way of looking at the patents. Charting those numbers over time is equally important if an investor is to have a full understanding of how the patents evolve. Right now, it doesn’t look like this holding is patenting anything new.

Looking at the technologies covered by GE Medical Systems Global Technology, radiation and CT scan equipment are the major areas included within this subsidiary. The technology stack in this subsidiary begs questions because these areas are core competencies and principal revenue generators for GEHC. Are these just baseline technologies riding out their time lifespan? Could this mean that there is little innovation left to be had with, say, computed tomography? When the patents expire, what impact will it have on the company? Is there some sort of strategy at play here in having this particular assignee hold ever fewer patents?

GE Medical Systems Global Technology Co LLC's Patents Over Time

Smaller Subsidiaries Are the Little Patent Engines That Could

Now let’s take a look at some of GEHC’s smaller subsidiaries. First are the divisions created in-house. GE HealthCare AS and GE HealthCare Ltd are working in the field of organic chemistry with such processes as reparation of carboxylic acid amides and introduction of isotopes into organic compounds. GE Precision Healthcare LLC is the holding that brings AI advancements to the table for the company—it protects inventions dealing with biomedical image inspection using artificial neural networks and learning algorithms.

GE HealthCare AS

GE HealthCare Ltd

GE Precision Healthcare LLC

Like any big company looking for opportunities to be a leader in innovation, GEHC doesn’t appear to suffer from “not invented here” syndrome, or the notion that patents from outside the company won’t be as good or as functional as what can be developed internally. As such, the company isn’t just relying on its own R&D to generate inventions that breed growth. GEHC has an acquisitive nature in its genes—one that manifested itself even before the 2023 spin-off from GE and the subsequent announcements on Caption Health and IMACTIS.

Datex Ohmeda, acquired in 2003, and Monica Healthcare, purchased in 2017, are focused on advancements around childbirth—specifically, incubating newborns and testing in utero. BK Medical, acquired in 2021, a real-time imaging company that provides data to surgeons in the midst of procedures—a capability that has the potential to improve accuracy—has developed technology around image processing using sonic waves and sonar systems for short-range imaging. Prismatic Sensors, a Swedish startup, also acquired in 2021, has patented on photon counting, mechanics around transmission CT, and measuring radiation intensity with semiconductors. Prismatic’s novel way of placing silicon in a manner that absorbs and quantifies photons is one of the main reasons GEHC gave in purchasing the startup with the cutting-edge CT technology.

Plotting the patents over time of these recently acquired subsidiaries reveals some eye-opening trendlines: BK Medical has a strong supply of recent grants; Monica Healthcare’s activity line looks like the ups and downs of the pulse rates the company patents; and Prismatic Sensors demonstrates a robust portfolio.

BK Medical AS

Evolution of BK Medical Patents

Datex Ohmeda Inc

Evolution of Datex Ohmeda Patents

Monica Healthcare Ltd

Evolution of Monica Healthcare Patents

Prismatic Sensors AB

Evolution of Prismatic Sensors Patents

After the Spinoff, But Before the Latest Acquisitions

The first question on an investor’s mind when news of an acquisition breaks: What does the new entity bring to the table? When examining this question from the vantage point of patents, it helps to first have an overall picture of the acquiring company. Below is a bar chart of GEHC’s technology exposures in its patents before the announcements of Caption Health and IMACTIS.

Most Frequently Patented Concepts by GE HealthCare

How Caption Health and IMACTIS Patents Stack Up

Patent Progression of the Target Companies

Eyeballing the movement of the two companies’ string of patents, investors can see that Caption Health is a newbie to invention. The company started winning grants in 2020, and tripled its grants in 2021. Some of its recent patents: retrospective image saving for ultrasound devices, circuitless heart cycle determination, and video clip selector for medical imaging. As for IMACTIS, the company has been patenting for a decade, with a steep increase in the number of patents granted between 2015 and 2017, after which the number of patents granted decreased significantly. The company looks to be heading upward again. Its recent patents include a system for introducing a needle into a patient’s body, navigating a surgical instrument, and a stand for a puncturing device. Both companies, it should be noted, are quite small when it comes to the number of patents they’ve been assigned. Neither has ever been granted more than 16 in a given year.

Number of Patents Filed by Caption Health

Number of Patents Filed by IMACTIS

Location, Location, Location

Location is the number one consideration in real estate, and it has a strong correlation to patents as well because it indicates where the company believes the strongest markets are for their inventions. For Caption Health, Great Britain is the number one market, followed by the U.S. and then Japan. For IMACTIS, Europe tops their filing geography; the U.S. and China are second and third.

Top Filing Countries for Caption Health

Top Filing Countries for IMACTIS

The Tech Savvy of Target Companies

The invention that goes into medical devices makes up the miracles of modern medicine. But if you break down any single invention, you’ll find a long list of technologies shoring it up. That list gives investors a sense of whether a company’s patents are pushing into new horizons or merely improving upon the same old stuff. At Caption Health, the top technology is “neural networks based on learning methods,” a good indicator that the company is moving ahead on AI advances. Other terms and phrases that point toward the AI arena: “ICT” (information and communications technology) and “algorithmic details.” IMACTIS has an entirely different set of core competencies emphasizing precision in guiding instruments into the body—highly prized for complex surgeries. Precision innovation is one of GEHC’s stated corporate strategies—precision care is also an overall trend in medical technology—because it reduces the time to treat, improves medical outcomes, and lowers costs.

Top CPC Codes for Caption Health

Caption Health Tech Tree Map

Top CPC Codes for IMACTIS

IMACTIS Tech Tree Map

Caption Health and IMACTIS Bring It with Ultrasound and 3D Needle Navigation Patents

We looked above at the overall picture of GEHC’s technology exposures before the acquisition announcements of Caption Health and IMACTIS. Here we see the main patent coverages of the two target companies.

Top Patented Concepts by Caption Health

Top Patented Concepts by IMACTIS

Adding It All Up

Caption Health and IMACTIS: Acquisitions For the Core and More

Isolating the main CPC codes for Caption Health and IMACTIS and applying them to GEHC’s current portfolio shows how and whether GEHC covered the technologies. For Caption Health, neural networks based on learning methods (G06N3/08) and diagnosis using ultrasonic, sonic or infrasonic waves (A61B8/54) are the company’s main patenting achievements. At IMACTIS, the primary technology protects devices for guiding surgical instruments (A61B34/20).

The upshot? GEHC has long been established in ultrasound, but Caption Health adds AI capabilities and image data generation to strengthen and improve that expertise. Over the past five years, GEHC has been trying to put together the building blocks of AI, particularly in their GE Precision Healthcare subsidiary, but with Caption Health, the company appears to be consolidating and improving capabilities in this core business with new accretive technology applications.

As for IMACTIS: Though IFI CLAIMS found some 50 patents on surgical navigation in GEHC’s original patent portfolio, IMACTIS conveys a whole new dimension to GEHC’s patent lineup: 3D virtual images for surgical navigation. After all, the human body and its organs and tissues do not exist on flat planes, so it stands to reason that a comprehensive, full-bodied picture would improve a surgeon’s accuracy when inserting instruments.

Bottom line: From a patent standpoint, the acquisitions of Caption Health and IMACTIS make sense for GEHC.