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$1 Billion IBM Merge Merger Emerges

IBM's (NYSE:IBM) purchase of the medical imaging software company Merge Healthcare (NASDAQ:MRGE) for $1bn is another indicator of the growing convergence of computing and medical technologies - and also of the continued emphasis on cost containment in healthcare.

Big Blue intends to use the "cognitive capabilities" of its Watson supercomputer of TV quiz show fame to analyse images from Merge's medical imaging management platform more quickly and efficiently, and therefore more cheaply, than is currently possible.

A growing problem in healthcare is not so much acquiring data such as genomic sequences or medical images but the number-crunching power necessary to analyse the data once it is acquired. Merge's technology is used at thousands of hospitals and surgeries as well as by clinical research institutes and pharma companies to store and interrogate images.

After the acquisition, IBM will be able to feed this data into what it calls its Watson Health Cloud and use the platform, which has sometimes been referred to as an artificial intelligence, to draw conclusions that can be used to guide therapy. Information stored in electronic health records, data from wearable devices and other related medical data can be used as well, potentially increasing the accuracy of its diagnoses.

IBM says that medical images account for 90% of all medical data. Merge's technology can speed analysis by comparing new images with a patient's image history, or with images of similar patients, to detect changes and anomalies.

Eyes on the prize

The Merge deal is the seventh billion-dollar medtech transaction announced this year and the third healthcare acquisition - and the largest - IBM has made since forming its Watson Health unit in April.

The company is moving into new areas such as healthcare as demand for its traditional products has decreased over the years. IBM's sales have decreased for 13 consecutive quarters.

The other two health software companies it has bought this year are Phytel and Explorys. The former offers cloud-based services to help coordinate care and collect data on health outcomes; providers can use this to show regulators and payers that their patients are cared for in a manner both clinically sound and cost effective. The latter links data from different sources, including clinical, billing, device and patient information, and creates computer programmes and apps to allow access.

IBM has also struck other agreements in this space, including a collaboration with Medtronic (NYSE:MDT) for the development of algorithms governing insulin administration for diabetic patients (IBM collaboration is Medtronic's fifth diabetes deal in a month, April 14, 2015).

Merge shareholders will receive $7.13 per share in cash, a premium of 32% over the close on Wednesday. The deal ought to close later this year.

IBM says healthcare will be one of its biggest growth areas over the next 10 years, and it is certainly pursuing it intensely. Its focus on using analytical power to save payers money is very wise in the healthcare sector's unending climate of austerity. More deals of a similar complexion will surely follow.


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