In April 2021, Varian Medical Systems, specialist providers in radiation oncology systems and software in cancer care, was acquired by Siemens Healthineers, the medical device giant. This transaction made history as one of the biggest all-cash MedTech acquisitions. HBI spoke with the CEO of Varian, Chris Toth, to find out more about the deal and Varian’s plans for the future.
Before the acquisition, Varian was the number one global player in the linear accelerator market by both revenue and volume at the time of the deal and has been highly active in broadening its portfolio through its own acquisitions.
In an interview with HBI, Toth showed he is enthusiastic about the deal and the future of the combined companies: “I believe we will look back ten years from now at this combination, and you will see Siemens Healthineers as one of the strongest medtech companies in the world, in terms of changing the way healthcare is delivered.
“The Varian acquisition will be a very significant catalyst for channelling image guidance, diagnostics and the use of digital data and AI into precision therapy. When you look beyond oncology at Siemens Healthineers’ reach and the opportunities to address cardiovascular and neurovascular disease, we could be the company that helps extend global life expectancy.”
It is a bold claim, and with an eye-watering price tag of $16.4bn, not without some justification. But HBI speculates there must have been some trepidation from both parties ahead of such a big deal. Toth acknowledges that there was and notes that the transaction was carefully considered, with both companies taking the time to ask critical questions in advance.
Toth says, “Just after the combination was closed in 2021, (Siemens Healthineers CEO) Bernd Montag and I went for a two-hour hike in Germany, talking about where we saw the combined portfolio in the future. And we talked about the importance of ensuring the combined portfolio was rational as key to successfully integrating the companies.
“I’d argue the risk to both companies in doing this deal was outweighed by the opportunity. We are confident that this combination will result in more cancer patients living than had we stayed as two separate companies. We focused on our joint purpose as a company (a world without fear of cancer) and built on a common set of cultural values and beliefs.
“There’s a risk in every M&A that you do. But consider Siemens Healthineers’ position, and its efforts to create a patient digital twin – the perfect representation of an individual built up from diagnostic images, lab tests, wearable monitors, care team observations, many disparate sources of clinical data. We have this incredible digital / AI capability in Princeton New Jersey, with a robust infrastructure for building up AI algorithms – over 200 machine learning team members and AI specialists who are working to make this happen. We are focused on the opportunity to improve patient outcomes and the impact we can make together.
“What was missing pre-deal (for Siemens Healthineers) was the other side of the equation. Precision therapy or personalised care within oncology. There was all this knowledge of the best way to intervene, but not the outlet for cancer therapy.
“When we looked at our strategy at Varian, we’d made acquisitions and developed products and services in radiation oncology, interventional radiology, digitally enabled services, electronic medical records, and even patient engagement software tools.
“We had a broad infrastructure perfect to be married to imaging and other capabilities at Siemens Healthineers.”
Could the business simply be too big? After all, US multinational J&J has split apart, US corporation GE has spun healthcare out of the broader company, and 3M Healthcare has come out of multinational conglomerate 3M.
Toth thinks not: “If your portfolio is rational, that’s when a deal makes sense. Difficulties creep in when you amass assets that aren’t as relevant – even though they might have revenue.”
Toth is sincere in his vision for a world without fear of cancer. However, HBI points out it’s easier to focus on the goal when the business thrives. Being in medical imaging, lab diagnostics, artificial intelligence, and oncology treatment means there is a potentially substantial joined-up advantage for the patient. With a huge commercial advantage too in having all the synergies and data, and controlling more of the pipeline. You can leverage size and that makes a business more profitable.
“You’re absolutely correct”, agrees Toth. He explains: “It’s much easier to take a cultural, heart-based view when the business is a success. We’ve 240,000 patient touches per hour across Siemens Healthineers. We have more than 19m cancer patient touches per year.”
This all feeds into the business’s finances: “The mid-term view is 9-12% CAGR at the topline for revenue, and a greater than 20% EBIT margin by 2025. But, last year, everyone’s experience was marred by a lot of cost increases, substantial supply chain issues and other dynamics.
“We’ve weathered the supply chain storm better than others. We’ve looked at tradeoffs in our decisions on where to pivot our businesses.
“The EBIT margin we hit for full fiscal year 2022 was around 13% at Varian. We’re very confident in 20% in fiscal 25. We guided for this fiscal year 16-18% range on EBIT, and 9-12% on revenue. We closed the last year even with the challenges in global supply chain with revenue growth in the mid-single digits.
“We used to be very much dependent on radiation oncology, and now that’s split into more areas across comprehensive cancer care.
“Our book to bill ratio through the last year was 1.3. That shows a healthy backlog of demand – and our backlog is sitting at a healthy level. We see demand and diversification playing out.”
“Scale of operations will drive EBIT expansion, but we’ve said by 2025 we see greater than €350m of EBIT expansion from synergies: procurement, cross selling, and entity consolidation.”
Toth concedes few people at Varian know the nuts and bolts of the business as well as he does. He started as an intern in 1999, and education has been there ever since. He explains: “My mother worked at Varian, and the idea of a 9,000kg machine eradicating tumors was fascinating. After my internship and university, I rotated around roles in manufacturing, marketing, going out into the field, and retooling the product portfolio.”
Indeed, it must be hard not to interfere when he knows the business so well – and better than the people he leads? “It’s been a journey (laughing). When you care so much, you’re wired to fix things and to get to the solution. But the solution is best found closest to where the problem is located and you need to tap into the collective intelligence. And now it’s about creating the next generation of management.”
His fondest memory of his time at Varian is as a 23-year-old fish out of water district sales manager in the Midwest, in front of customers, dealing with practical problems – and it gave him hands-on understanding of what can, and can’t, be done in the field. After 22 years, he tells HBI he cannot envisage working anywhere else.