IBM sells its stake in Watson Health to investment firm

The purchase by Francisco Partners will add to its portfolio of the 400 technology companies it operates to expand its health tech lines.

The years-long foray into healthcare by IBM Corp. – in the form of Watson Health – appears to be drawing to a close, as it’s announced the long-rumored sale of the division last week.

The technology giant is selling its healthcare assets to San Francisco-based Francisco Partners, a global investment firm that specializes in partnering with technology businesses.

The definitive agreement was released without financial terms; throughout 2021, IBM had been rumored to be shopping the Watson Health division, with some news reports placing the price tag at about $1 billion. The transaction is expected to close in the second quarter of this year, the companies announced.

IBM Watson

IBM says the move will enable it to become “even more focused on our platform-based hybrid cloud and AI strategy,” said Tom Rosamilia, senior vice president of IBM’s software division.

Despite the sale of assets, IBM’s Rosamilia said the company “remains committed to Watson, our broader AI business, and to the clients and partners we support in healthcare IT.” Under terms of the agreement, the current management team of Watson Health will continue in similar roles in the new standalone company, “serving existing clients in life sciences, provider, imaging, payer and employer, and government health and human services sectors.”

“We have followed IBM’s journey in healthcare data and analytics for a number of years and have a deep appreciation for its portfolio of innovative healthcare products,” said a statement released by Ezra Perlman, co-president at Francisco Partners. “IBM built a market leading team and provides its customers with mission critical products and outstanding service.”

Watson built through acquisitions
IBM accumulated diverse assets to quickly build a presence in healthcare over the previous seven years, scaffolding those acquisitions on top of the artificial intelligence promise of its Watson supercomputer. For example, in April 2016, IBM paid $2.6 billion to acquire Truven Health Analytics, rounding out major purchases in 2015 that included population health management vendor Phytel, cloud-hosted analytics company Explorys and medical imaging software vendor Merge Healthcare.

All told, those four acquisitions cost IBM more than $4 billion. At the time, IBM estimated it had a total workforce of more than 5,000 employees in the Watson Health line, including hundreds of clinicians, epidemiologists, statisticians and others.

IBM Watson Health targeted cancer for its computing prowess, calling it Watson for Oncology, and sought to sell its AI services to leading health organizations to focus treatment options, but after finding more than a dozen clients among leading treatment centers, it appeared Watson’s supercomputing capabilities couldn’t deliver on the company’s initial promises, according to news reports. But even after years of effort, those initial attempts only chipped away at basic understanding of the disease.

An early partner of IBM was the University of Texas M.D. Anderson Cancer Center, to build Watson’s capabilities as a clinical decision support tool in oncology. But the cancer center let its contract with IBM lapse after five years and the investment of tens of millions of dollars, before Watson was employed widely in cancer care.

In June 2018, the Watson Health unit began to reduce its workforce, although it pushed back on rumors that those cutbacks involved as much as 50 to 70 percent of its workforce. At that time, a company representative would not provide additional details or give the specific number of employees being let go. The company also declined to say how many people Watson Health employed. In 2018, IBM claimed that Watson Health is “at work supporting cancer care in more than 200 hospitals in 11 countries,” a spokesperson contended.

What happens now?
The future for Watson Health looks unclear at the moment, with some industry observers feeling that some segments could be broken off and sold, with others suggesting that the components could be integrated with Francisco's existing healthcare holdings.

John Moore, founder and managing partner of Chilmark Research, believes that Watson Health's pieces have resale value. "Watson Health was a combination of acquisitions that were never knit together," he said. "It is highly likely that those of value, such as Merge, Truven and other components, will be polished up and sold off in pieces." He notes that even Truven, as an acquired company, "was built on acquisitions, so pieces of it may be broken out and sold separately as well."

Watson Health's assets include a wide variety of product types, added David Chou, senior vice president and chief information officer of Harris Health System and founder of "This will be an interesting watch to see whether there are any synergies between the Watson Health technology and the rest of Francisco's healthcare solutions, such as Availity, eSolutions, Capsule, GoodRx, Landmark, QGenda, Trellis and Zocdoc. It's possible that combining Watson with other products may be a winning combination."

Several other companies have strong data and analytics lines within healthcare, such as Health Catalyst, Innovaccer, Arcadia and others, as well as components of Epic and Cerner records systems, said Monique Rasband of KLAS Research. Watson's customers are likely to remain loyal for the short term to see what longer term strategy emerges from the acquiring company.

"KLAS’s research shows that if a provider or payer organization is not deriving value and does not like the direction of the new vendor, there becomes wandering eyes to see what the next best solution could be.  The opposite also applies to happy customers; they tend to stay," Rasband said. "Healthcare organizations will be watching closely to see where this new chapter takes them. There are solutions that have been making traction, and enterprise imaging and imaging in the cloud is one of them. The hope is that Francisco will be a good partner and work with customers to collaborate and find the synergies."

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