IBM sells Watson Health assets to investment firm Francisco Partners

IBM has reached a deal to sell the healthcare data and analytics assets from its Watson Health business to investment firm Francisco Partners, the companies announced Friday.

The companies did not disclose financial terms of the deal, but previous reports said IBM was seeking a price in the $1 billion range, Axois reported, citing people familiar with the situation.

The assets acquired by Francisco Partners include extensive and diverse data sets and products, including Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex and imaging software offerings, the company said in a press release.

Under the terms of the agreement, the current management team 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, the companies said.

IBM said the sale of Watson Health business, which is expected to close in the second quarter of 2022, will allow it to focus more on its platform-based hybrid cloud and artificial intelligence strategy.

RELATED: Experts say IBM Watson’s flaws are rooted in data collection and interoperability

“IBM remains committed to Watson, our broader AI business, and to the clients and partners we support in healthcare IT. Through this transaction, Francisco Partners acquires data and analytics assets that will benefit from the enhanced investment and expertise of a healthcare industry-focused portfolio," Tom Rosamilia, senior vice president at IBM Software, said in a statement.

Francisco Partners has invested in over 400 technology companies, and its current and past investments in the sector include Availity, eSolutions, Capsule, GoodRx, Landmark, QGenda, Trellis and Zocdoc.

“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 Ezra Perlman, co-president at Francisco Partners, in a statement. “IBM built a market-leading team and provides its customers with mission-critical products and outstanding service.”

Justin Chen, principal at Francisco Partners, said, "We look forward to ... helping the standalone company focus on growth opportunities to realize its full potential, and delivering enhanced value to customers and partners.”

RELATED: Oracle snags Cerner in $28B deal to gain a foothold in healthcare cloud market

Despite fanfare, Watson Health fell short of expectations

IBM launched Watson Health in April 2015 to offer cloud-based access to the company's Watson supercomputer for analyzing healthcare data. According to reports, IBM made a series of acquisitions to build Watson Health to the tune of $4 billion. Those acquisitions included Merge Healthcare, Phytel, Truven Health Analytics and Explorys.

Former IBM CEO Ginni Rometty referred to Watson Health as a "moon shot" project and had to potential to bring "world-class health care to every corner of the world."

Despite being backed by a significant budget and the marketing power of a major technology company, Watson Health fell short of expectations when it comes to revolutionizing healthcare, former Fierce Healthcare editor Evan Sweeney reported in 2017.

The shortcomings of IBM’s premier AI system—made famous by its appearance on Jeopardy! in 2011 and later co-opted to provide support for oncologists—are linked to a number of factors, including flaws with interoperability and data collection. according to an in-depth investigation by Stat.

"IBM had several missteps early on, especially in cancer care applications, that created significant setbacks for the business that they could not recover from," said Paddy Padmanabhan, founder and CEO of Damo Consulting, a growth strategy and digital transformation advisory firm.

In an interview last year, current IBM CEO Arvind Krishna acknowledged the company was too optimistic about the potential for Watson in healthcare, Axios reported.

RELATED: Microsoft to buy Nuance in a $19.7B deal to expand healthcare AI, cloud capabilities

Last week, an analyst said IBM was trying to get rid of all assets that "divert attention and capital, as well as carrying the risk of reputational damage," Tech Crunch reported.

The sale comes as IBM rival Oracle is making big moves into the healthcare industry with a $28.3 billion deal to pick up electronic medical records firm Cerner, one of the software company’s biggest acquisitions ever. 

Big software and tech giants continue to make a push into healthcare with megadeals like Microsoft's $19.7 billion bid for Nuance and two private equity firms picking up Cerner competitor Athenahealth in a $17 billion deal.

"In the current competitive landscape, IBM would not be considered a significant player in healthcare," Padmanabhan said. "Selling off the data assets essentially means an end to the Watson Health experiment, however, it may allow IBM as an organization to refocus and develop a new approach to healthcare."

He added, "IBM appears to be selling just its data assets as a part of the transaction. It must be noted that Watson Health was a business built primarily around acquisitions such as Truven and Merge Healthcare which was about large data sets. The goal would have been to apply IBM’s AI tools to derive advanced insights but IBM evidently could not bring that vision to fruition. These same data assets are now being sold to Francisco Partners. It will be interesting to see how the new owners are able to leverage the data assets."