Varian and the changing nature of cancer care

This article appears in our Q3 2019 Quarterly Report.¹

Sadly, it is now a rare person who hasn’t felt the shock and sadness of a loved one fighting cancer. This single term for a family of diseases is now the second largest cause of death globally. It accounts for about one sixth of all deaths. And the incidence is rising.² In 1990 around 0.70% of the world’s population were suffering from the disease. That proportion was 0.87% in 2017. By 2040 it is forecast to rise to nearer to 1.5%.³

Why?

There are two key reasons for this new epidemic. Longer lives ironically increase the risks of cancer. So do a variety of risk factors that modern life makes harder to avoid.

We are making progress

The good news is that treatments are improving. Those treatments are in five categories. Medical oncology and immuno-oncology use drugs. Surgical oncology and Interventional oncology use physical interventions. And radiation oncology uses radiation to destroy cancer cells.

Each of these disciplines is able to provide the best-fit solution for different situations. And all of them have made huge advances in recent years. Huge progress has also been made in the critical techniques that support treatment, such as screening, diagnosis, treatment planning, and symptom management.

The success has been impressive. Here in the UK, the number of people surviving five years from diagnosis increased by 21% from 2010 to 2015.⁴The key is combining all the ingredients of modern cancer care successfully. Varian Medical Systems (“Varian”) has mirrored this journey from independent specialism to a holistic approach.

Radiation oncology

Varian started as a true originator of radiation oncology. In 1960 it produced the “Clinac 6”, one of the first commercial linear accelerators (“linacs”) for cancer treatment.⁵ Linacs deliver a focused dose of X-rays to destroy cancer cells. The linac is a flexible and versatile tool and its introduction was a huge leap forward.

Varian originally developed the linac because they had expertise in microwave tubes and nuclear test apparatus. They had a technology and were looking for applications. Over the years, its focus on the medical linac grew and grew. But its heritage remained, a technology-led company, specialising in radiation oncology.

A business transformation

Then in the last decade, this focus began to shift. In addition to perfecting the linac, Varian invested more in developing software. This included treatment and cancer care solutions, taking the focus beyond just the machinery.

A symbolic change came at the start of 2017. Varian span out its imaging business, separately listing it as Varex Imaging. The whole of Varian’s portfolio is now focused on cancer treatments. The focus is the disease, and how to treat it, rather than the technology, and what to do with it.

So Varian is now a leader in proton therapy, and more powerful and targeted new form of radiation therapy. It has gathered a series of interventional oncology treatments. These include, for example, microbeads that block the blood flow to a tumour. Varian is still also developing its software portfolio at an impressive rate.

With all these changes, the company claims to now “touch” four million cancer patients each year. This is an increase from two million only four years ago.⁶

This shift has also changed the business model. There is more research. R&D spending is up from around 6.5% of sales a decade ago to 8%.⁷ In the same time period, recurring services and software sales have risen to around 50%, from 30%. And the reliance on the US has fallen to below 50%. All attractive features to long term investors like WHEB.

We opened our position in Varian in September 2013. We’ve been supportive investors through this transformation. Our process is to focus on sustainability challenges, and to address them as directly as possible. We like management teams that demonstrate clear strategic thinking and focus on impact.

Areas of high unmet need

There is still more than this to like about Varian. Another important cancer statistic is that 70% of cancer deaths come from low- and middle- income countries.⁸ Varian launched its low-cost Halcyon linac, developed for those markets, in May 2017. Of the 284 Halcyon machines sold since then, 75% are in places where there has not been radiation oncology before.⁹ It has also acquired an Indian business called Cancer Treatment Services International (CTSI). CTSI is proving that affordable high-quality cancer care can be financially viable. Varian wants to roll that model out. Varian’s impact on lives and livelihoods around the world is profound. We’re proud to be a part of it.

¹ https://www.whebgroup.com/impact-investment-funds/sustainability-fund-oeic/quarterly-reports-fp-wheb-sustainability-fund-oeic

² https://ourworldindata.org/cancer

³ http://gco.iarc.fr/tomorrow/graphic-isotype?type=0&population=900&mode=population&sex=0&cancer=39&age_group=value&apc_male=0&apc_female=0

⁴ https://www.macmillan.org.uk/_images/cancer-statistics-factsheet_tcm9-260514.pdf

⁵ https://www.varian.com/about-varian

⁶ Varian management at American Society for Radiation Oncology Meeting, 16 Sept 2019, per transcript

⁷ Varian management at American Society for Radiation Oncology Meeting, 16 Sept 2019, per transcript and presentation

⁸ https://www.who.int/cancer/resources/keyfacts/en/

⁹ Varian 3Q19 report 24 July 2019

¹⁰ Varian management at American Society for Radiation Oncology Meeting, 16 Sept 2019, per transcript

¹¹ Varian management at American Society for Radiation Oncology Meeting, 16 Sept 2019, per transcript and presentation

¹² https://www.who.int/cancer/resources/keyfacts/en/

¹³ Varian 3Q19 report 24 July 2019