Dutch giant to buy Baltimore's Visicu

The Baltimore Sun

Less than two years after going public, Visicu Inc. has agreed to sell out for $430 million to the health care unit of the Dutch electronics giant Royal Philips Electronics NV.

The $12-a-share cash offer represents a premium of 35 percent over Monday's closing price of $8.86 for the Baltimore company that developed systems to monitor intensive-care patients. But the price is far below its trading range in the weeks after its April 2006 initial public offering.

Visicu's board has agreed to recommend the transaction, which is subject to regulatory review and a vote of Visicu shareholders. Visicu shares yesterday soared $2.91, or 33 percent, to $11.77 in anticipation of the deal closing.

Founded 10 years ago by two Hopkins doctors working between shifts in the intensive-care unit to develop their idea, Visicu now becomes part of an electronics behemoth with operations in 120 companies.

Philips will maintain Visicu with "business operations virtually unchanged" and "keeping in place a majority of the management," according to Steve Rusckowski, chief executive officer of Philips Healthcare, a subsidiary based in Andover, Mass.

In addition, Rusckowski added, "there are some capabilities in Baltimore we would like to leverage," helping other Philips subsidiaries develop patient management systems in oncology, cardiology and women's health.

But the largest impact is likely to be the application of Philips' marketing muscle to get Visicu systems into more hospitals. Philips Healthcare has annual revenue of about $10 billion, and employs 33,000 people, 60 percent of them in sales and service.

Rusckowski said Philips is first in sales of patient monitoring systems in the United States and worldwide.

Visicu, which has its systems in about 180 U.S. hospitals, had revenue of $32.6 million in the most recent four quarters and employs about 100, many of them at the company's downtown Baltimore headquarters. It has a sales and marketing force of 17.

"It makes sense for Visicu," said Jay Nogueira, a health analyst at T. Rowe Price in Baltimore. "They have a good product offering, but they've had a hard time selling it."

In Visicu's splashy initial public offering, shares were priced at $16, but shot up to more than $25 in the first 10 minutes of trading.

But new hospitals were slow to sign up for Visicu systems, and stock price declined steadily for several months, then leveled off. Shares have been in the $7 to $10 range for most of the past year.

The price surge in early days of trading last year represented "the euphoria around the IPO," said Nogueira. "It could have been a reasonable price if Visicu went on to execute very well, but they did not execute very well."

He said Visicu faced tough competition for capital dollars, with hospital officials always under pressure to provide all types of updated equipment.

Hospitals can invest in Visicu's unfamiliar technology, which costs about $2 million upfront, requires doctors and nurses to change the way they operate and has an uncertain financial return, he said, or "you can buy a 128-slice CT scanner and make your docs happy and show the CFO a return on investment."

However, he said, he thinks Philips can sell many more Visicu systems. "I'm a big fan of this directionally," he said.

Robert Pepper, Visicu's vice president for marketing, said the company had been "growing very aggressively as well as profitably" and was not looking to sell. Through the first three quarters of this year, Visicu posted net income of $7 million (up 71.7 percent from the comparable period in 2006) on revenue of $27.8 million (up 24.5 percent).

Pepper said Visicu's management began talking to Philips Healthcare about a year ago, after meeting at the Health Information Management Systems Society trade show. Initially, he said, the two companies talked about a variety of possible collaborations, such as a marketing partnership, but eventually reached a sale agreement.

About half of Visicu's shares are owned by five venture capital and investment funds, including Sterling Venture Partners of Baltimore, according to a Bloomberg News compilation based on filings with the Securities and Exchange Commission. If the deal closes at the $12 price, the five funds will get about $40 million each.

Shares held by the company's founders, Dr. Michael J. Breslow and Dr. Brian Rosenfeld, both executive vice presidents, would be worth $9.3 million and $5.1 million, respectively. The CEO they brought in to run the company and take it public, Frank T. Sample, stands to get $10.4 million.

Breslow and Rosenfeld conceived of the system to extend a scarce resource - themselves. Research showed that intensive-care patients do better if their care is overseen by a specialist called an intensivist, but there aren't nearly enough intensivists to staff all hospitals.

The system sets up a control room with multiple monitor screens to allow one specialist, helped by nurses, to track patients in several locations. The system alerts the doctor when vital signs change. The control room intensivist can see patients and can talk to nurses and doctors on the scene to coordinate care as needed.

Research by some of Visicu's clients reported lower mortality and shorter ICU stays, which saves money for hospitals if they are being paid on a per-case basis.


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