Medical Device Link.

Originally Published MX November/December 2001

COVER STORY

GE's Changing of the Guard

Joseph M. Hogan, president and CEO of GE Medical Systems, rises to the challenge of leading one of industry's giants.

Interview by Greg Freiherr

Photo courtesy GE Medical Systems

The rapid succession of appointments was part of a grooming process. Hogan had been handpicked as the successor to Jeffrey Immelt, who served as president and CEO of GEMS from 1997 to September 2001. Immelt was the odds-on favorite to succeed GE's legendary leader Jack Welch, and as Immelt rose, so would Hogan. The pieces fell into place in late November 2000, when Immelt was named to replace Welch and Hogan was officially tapped to follow Immelt at GEMS.

Hogan had been a GEMS outsider with an inside track on its leadership. Before April 2000, he had not held a position within GEMS. Yet, as a staff executive in the office of the CEO at GE Corporate (Fairfield, CT), Hogan helped guide the development of digital x-ray technology, which had assumed a central position among GEMS product offerings. More importantly, Hogan had proven himself while serving as president and CEO of GE Fanuc Automation North America (Charlottesville, VA), a global supplier of industrial controls systems and a joint venture between GE and Fanuc Ltd. (Oshinomura, Japan). He had also gained the confidence of Immelt, who worked with him during his early years at GE Plastics.

In the first year of his tenure at the helm of GEMS, Hogan has maintained a breakneck pace, managing acquisitions, collaborations, and the launch of new products while developing strategies to offset consolidations by rival companies, a global economic downturn, and the horrific terrorist attacks that sent shock waves through capitalism on a worldwide basis.

Hogan exudes confidence beyond his years, yet maintains a kind of humility grounded in the understanding that team play is what GE is all about. He speaks with unbridled enthusiasm. Initiatives in molecular imaging, he says, will lead the way to identifying the earliest signs of disease (see sidebar). New digital technologies will expand x-ray–based imaging in the areas of mammography, chest radiography, and interventional cardiology. And any challenges from the general economy and the threat of terrorism are no more than bumps in the road, if that.

In the following excerpts from an interview with MX contributing editor Greg Freiherr, Hogan discusses these and other issues, including his personal relationship with the leader of GE and how that will figure into his performance as GEMS's top executive.

MX: What have been the greatest challenges of your first year as president and CEO of GEMS?

Hogan: Obviously, the biggest challenge was what we faced in the wake of the terrorist attacks in New York City and Washington, DC. To be sure, we rallied and responded in a meaningful way.

In addition, we put together our first major collaboration in molecular imaging and mapped out some of the steps we have to take to meet our goals in this area.

We've also had some acquisitions. And we've executed some internal resource allocations to address opportunities.

The launch of the Discovery LS system, a combined positron emission tomography (PET) and computed tomography (CT) scanner, in New York City last spring, was a huge deal. We wanted to make sure that we brought the technology out right—to show that it is viable—and that we could deliver the technology this year. It was a large milestone for us.

GEMS has successfully commercialized digital x-ray, in some instances well ahead of its competition. What are the challenges in this field?

We have been very successful in digital x-ray, whether you look at mammography, radiography, or digital cardiac systems. This has to do not just with taking digital images, but also with the ability to perform advanced applications such as image subtraction and dose equalization, which allow you to remove the ribs out of chest x-rays so that you can see all of the lungs. This is not an easy area, and our competitors are having a tough time in digital x-ray for two reasons.

First, the technology itself is difficult. You can't just take a digital flat-panel detector and offer it alongside your current imaging chain, because you won't be able to take advantage of all the capabilities that digital has to offer. You have to modify the imaging chain.

And second, of course, you have to fabricate the digital panel. And that is tough to do. Digital panels are similar to very large integrated computer chips. When you have an x-ray panel that measures 41 x 41 cm, for example, understanding how to produce it in an efficient manner is not a trivial matter.

The Future: Molecular Imaging

GEMS has recently created a unit dedicated to genomics and molecular imaging. Is the company's collaboration with GlaxoSmithKline [Greenford, Middlesex, UK] just the beginning of a wider effort at GEMS?

It's definitely just the beginning. Pharmaceutical companies would all like to be able to prediagnose diseases three to four years earlier than they would otherwise be identifiable. If they could intervene at an earlier stage of the disease, they could either stop it or delay its onset for 10 or 15 years beyond the time when the patient would normally exhibit clinical symptoms.

There's a natural synergy that encourages us to work together with pharmaceutical companies to spend money on R&D in the area of molecular imaging, because it helps with their development of therapeutic drugs.

Pharmaceutical companies generally focus on therapeutics because the return on investment is greater. Does a collaboration where GEMS offers the diagnostic component enable the partners to cover more ground?

Yes, but doing so means developing our continuum of products even further. Diagnostic imaging is currently aimed at the disease- or injury-confirmation point. We can confirm that the bone's broken and where it's broken, and whether there's a tumor on the liver.

Molecular imaging enables us to diagnose disease two, three, four, and maybe even five years before the onset of physical symptoms. And after the early signs of disease are identified, we can use molecular imaging to understand the therapeutic effect of the drug that is being delivered. Pharmaceutical companies want to know both of these things.

Using molecular methods, we would be able to tell within 24 hours whether chemotherapy is having an effect. With a CT exam, on the other hand, we might have to wait three to four weeks for that kind of information. The immediacy possible with molecular imaging could really help the patient, because we would be able to make adjustments if results aren't evident immediately.

Is molecular imaging a natural fit with the kind of in vivo diagnostics already being explored in radiology?

Yes. Magnetic resonance (MR) spectroscopy is probably the best example. We can identify prostate cancer with MR spectroscopy. By measuring choline and citrate levels, we can determine if a tumor in the prostate is cancerous.

Moving forward, there's much more of a chemistry component in molecular imaging compared with what has existed before in this industry. So, within GEMS, we have to build that chemistry capability into our business.

What are the pros and cons of buying some undervalued molecular diagnostics companies, considering that devaluations in the stock market may have created some attractive possibilities?

Such undervalued companies do not necessarily appear in molecular imaging, because there just aren't very many mature companies in this field. There are a lot of intellectual properties that are promising, however.

For example, in PET, there are some isotopes that might eventually be transformed into the successor to positron-emitting fluorodeoxyglucose, the mainstay imaging agent in PET.

But, like in any industry, it's difficult to tell which of these companies and their technologies will survive and which ones won't. That's really what we are paid to do—to figure that out.

How do you do that?

We grow organically—internally—so that we can make good decisions about what we want to acquire. We want to identify ongoing businesses that will allow us to extend our capability in certain areas that we can't do as rapidly or as efficiently internally. It's all about cost and time.

Will collaborations such as the one with GlaxoSmithKline provide you with enough understanding in molecular imaging so that you are able to tell whether to put your money into an acquisition or into internal development?

Yes. Once you tap into those companies, it opens up a whole new world. You can really understand from the inside what they think and what they see. Our understanding grows every day. It's through these industry connections that we really get most of our rich knowledge and understanding.

Consolidation and Expansion

GEMS has been actively buying up smaller companies such as Coincidence Technologies [Liege, Belgium], which makes equipment for creating PET radioisotopes. Your competition, meanwhile, has been buying much larger companies.

Obviously, Philips Medical Systems [Bothell, WA] and Siemens Medical Systems [Malvern, PA] have done some really big deals lately. If you look at the way we've conducted our deals, it is significantly different.

Philips has done some really large deals to fill the holes in its portfolio. We tend to do middle-sized acquisitions with companies that we feel can add a lot of value either in distribution or technology. So you see all this consolidation, but there are two completely separate ways of going about it.

With the competition getting bigger, is life going to get tougher for GE?

The history of both GEMS and GE indicates that we compete very well with large companies. My contention is that we are stronger in a more-consolidated marketplace than we are in a fragmented marketplace, where we have to move against smaller competitors that are very fast. The kind of industry consolidation recently brought about by our competitors therefore plays to our strength.

Where do you see some of your greatest opportunities?

I think that we have strong opportunities both domestically and globally with our imaging products. The global market continues to be strong. China is a very good marketplace for us. Japan seems to be working its way out of a problem. Europe is good.

Our technology continues to evolve and improve, and I see many things coming down the road in our portfolio. We recently introduced two new ultrasound products—the Logiq 7 and Logiq 9—and I believe the marketplace will respond extremely well.

There are also opportunities in information technology [IT]. The IT business is growing phenomenally. In fact, we have the number one picture archiving and communications systems business in the world.

From E-Business to GE-Business

What about opportunities involving business tools, such as the Internet?

When I joined GEMS, my focus was e-business, so I was involved very early in regard to the Internet. And the way it was initially presented, the Internet would be mainly an external tool. It was going to streamline the relationship between distributors and customers. But what we found out rapidly was that the Internet is also great for improving productivity internally. So we have broken e-business into three sections that we call "buy, make, and sell."

In regard to the "buy" side, 100% of our purchase orders will be electronic and seamless by the end of this year. Because of the Internet, we work this year with only about half the paper that we did last year.

If you look at the "sell" side—the front end of our business—our sales and customer networks and our ordering system all currently operate using electronic interfaces. Before that, it was all through paper and faxes.

What do you do with the customers who don't want to go electronic?

I always try to sell the way that customers want to buy. So if our customers want to enter orders over the Internet—and some of them do—we have a customer interface over the Web that allows them to do that. If they don't want to do that, our salespeople have Web capability and they do it for their customers. In the end, it takes the paper out of the process. It makes the acknowledgment and sequencing of orders much more seamless.

Jeff Immelt has been quoted as saying that the Internet is primarily a means for internal productivity. Is that correct?

That is the "make" process. When orders come in and when we transfer information between plants, we place them on the Web in middleware database systems. This allows us to digitize things rather than place them on paper and pass paper around.

Looking Back?

Immelt was your predecessor at GEMS. Does it help or hurt you for GE's top guy to have that kind of background?

It's wonderful that Jeff and I can communicate at a high level. I really don't have to explain anything to him. The ideas flow pretty readily. He is extremely supportive of the business and knows the customer base well. It's a real asset for me. It also helps that I have known Jeff for years. I have a lot of respect for him. He did a terrific job with this business.

If there were someone else in Jeff's spot now, it would be more difficult for me. It would take me a long time to get that person up to speed on the industry and what needs to be done. I think his presence accelerates what I can do here at GEMS by years.

It's been said that GE is run like a family of independent businesses. It sounds as though Immelt is still a big part of GEMS.

Jeff is always here to help me, but he has a $130 billion portfolio to manage. So he in no way inhibits me from doing my job here.

Immelt may still have his own ideas about how things should be done. Does this make it difficult for you to set your own course?

The fortunate thing is that I have worked with Jeff for years. We respect each other's opinions. In our relationship, we have not always agreed on everything, but we have always made the right business decisions collectively, and I am very comfortable with that.

When Jeff challenges me on something, if I can come back with the data and analysis supporting my position, he'll approve it. If he disagrees and I can't support my argument, then he is right. It's that kind of constructive conflict within GE that allows the business to excel.

Copyright ©2001 MX