Industryweek 1305 21606 Varian Truebeam

IW50 Profile: Varian Medical Systems -- Varian Chief Offers Dose of Reality

April 15, 2010
Medical device maker pins hope on innovation to combat rising costs from health care reform.

A cancer treatment technology that can deliver radiation doses from many angles has become much faster and more cost-effective for hospitals and clinics thanks in part to Varian Medical Systems Inc. Less than a month after President Obama signed the United States' health care reform bill into law, the Palo Alto, Calif.-based X-ray and radiation products manufacturer introduced its next-generation stereotactic radiotherapy system.

The new product, called TrueBeam, is an upgrade to Varian's Trilogy system, increasing the delivery of monitor units per minute to 2,400 from 1,000, says Varian President and CEO Timothy Guertin. The efficiency improvements could prove to be more beneficial for Varian than originally anticipated. That's because the $2.2 billion company expects some increased costs from the health care reform law.

The federal plan will place a 2.3% excise tax on medical device sales starting in 2013. Varian may have to compensate for the tax with some product price increases and cost reductions, Guertin says. In addition, the increasing number of insured Americans could help Varian's business in the long run, but in the short term it could hurt business if the government pays for the newly insured by shifting costs from Medicare to private insurers, Guertin says.

"I'm expecting the next few years are going to be a little rocky. Somewhere out in 2013 or 2014 we're going to start to see this stabilize into some type of normalcy, so certain things are going to get better this year. Some things won't get better for a few years," Guertin says.

The company will look to build momentum off a strong 2010 start. Varian's first-quarter net income was $78.8 million, a 14.5% increase over the year-earlier period. Revenues rose 6% to $541 million. Varian was scheduled to announce its second-quarter earnings on April 28.

Varian's newly released TrueBeam radiotherapy delivery system. The product is an upgrade to its Trilogy system.

Guertin says he's confident that Varian's strong product portfolio will minimize any impact the health care reform law could have on his company. "If we can do very advanced therapies and do them faster, then we can get a lot more patients that day," he says. "And the vast majority of costs in medicine are related to people. They're not related to the physical device."

Another technology that Guertin says positions the company for future growth is the flat-panel X-ray product segment. Varian produces flat-panel digital detectors for filmless X-ray imaging, which has become the company's fastest-growing market segment, according to spokesman Spencer Sias. Over a four-year period, Varian's flat-panel business revenues have grown to $140 million from $17 million, Sias says.

Guertin believes filmless X-ray imaging will eventually replace traditional X-ray negatives. "Film is going away in medicine just like it is everywhere else," Guertin says. The digital images allow doctors and other health-care providers the opportunity to see the image immediately rather than waiting for the film to develop. The technology also provides improved image quality over that of image-intensifier tubes used in film X-rays, Guertin says.

At the plant level, Varian has included operations personnel in a process known as "design for manufacturing." Plant workers collaborate with engineers to build equipment so parts are more accessible during the assembly process. The company also incorporates self-testing devices in certain products to reduce quality-check and servicing costs, Guertin says.

"What we think is going to happen is as the developing world sees longer lifespans, they're going to see more patients who require advanced medical treatment, so we expect the developing world to become a bigger and bigger location for us."
-- Timothy Guertin, President and CEO, Varian

The company's product advancements provide it with opportunities outside the United States. Asia, in particular China and Japan, has been a major growth market for Varian. The company opened a new plant in Beijing in July 2007 and announced in January that the facility received certification to assemble and service X-ray tubes. India and other developing economies have longer-term expansion potential, Guertin says. "What we think is going to happen is as the developing world sees longer lifespans, they're going to see more patients who require advanced medical treatment, so we expect the developing world to become a bigger and bigger location for us," Guertin says.

IndustryWeek selects the IW 50 Best Manufacturing companies each year based on a formula applied to the IW U.S. 500 list of the largest publicly held manufacturers in the country. View all IW 50 manufacturers and associated content. Interested in information related to this topic? Subscribe to our weekly Leadership Insights From The IW 50 eNewsletter.

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