Devices & Diagnostics

New CEO = string of wins for Accuray

Accuray Inc. (NASDAQ: ARAY) has a tough row to hoe: Cultivate a market that crosses medical specialty lines for a product that costs millions. Since president and CEO Euan Thomson signed on, the company has racked up a string of wins, including the 200th installation of its CyberKnife radiosurgery device in June and getting Japanese market clearance for the device this month.

Accuray Inc. (NASDAQ: ARAY) has a tough row to hoe: Cultivate a market that crosses medical specialty lines for a product that costs millions.

The Sunnyvale, Calif.-based company’s CyberKnife system is a pioneering device in radiosurgery, using precisely targeted, massive doses of X-ray radiation to non-invasively destroy tumors.

Founded in the 1990, Accuray’s device was based on an idea developed by a team of physicians at Stamford University, led by Dr. John Adler, in the late 1980s. Since its founding the company has seen its share of ups and downs, not the least co-founder and former CEO Adler’s not-exactly-friendly departure earlier this year. Since its debut as a public company in February 2007, Accuray’s stock price has dropped from a $22.68 start to its current level in the mid-$6.50 range.

But the downs aren’t the whole story. The Food and Drug Administration granted 510(k) clearance to the CyberKnife in 1999 for the treatment of head, neck and upper spine tumors; clearance for treatment of tumors throughout the body followed in 2001.

Soon after that, president and CEO Euan Thomson signed on. Since then, the company has racked up a string of wins, celebrating the 200th CyberKnife installation in June of this year and winning approval from the Japanese Ministry of Health, Labor and Welfare for the G4 version of the system earlier this month.

The latest CyberKnife iteration, the VSI, which can track and correct for the movement of a patient’s body during treatment, saw its first installation in May. And Accuray inked a distribution and R&D deal with imaging colossus Siemens (ETR: SIE) that opens up a wealth of possibilities for global distribution and new product enhancements.

MassDevice spoke with Thomson about the company’s origins, the split with Adler (“John left for personal reasons. There was no disagreement over strategy or any other issue,” Thomson told us), the Siemens deal and why healthcare reform could be a big boon for Accuray.

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Q: Can you delve into what, exactly, the CyberKnife system does?

A: Accuray was founded in the early 90s to develop and eventually commercialize the CyberKnife system. CyberKnife itself came out of Stanford and has a Silicon Valley connection. It’s what we call a robotic radiosurgery system. It’s an image-guided robotic system for delivering high doses of X-rays with the intention of destroying tumors.

Radiosurgery is distinct from more widely known radiation therapy, in which other devices are used. The idea behind radiosurgery is to destroy tumors as an alternative to surgery, whereas radiation therapy tends to use larger fields of radiation after a tumor has been removed, so they are more of an adjunct to accompany surgery.

What we provide is an alternative to surgery. We started with … the tumors that just can’t be cut out. Increasingly, the CyberKnife is used for tumors which could be cut out, but a non-invasive approach is judged to be preferable. The CyberKnife is very well able to treat tumors throughout the body, even if the tumor is moving, such as a lung tumor — we can still target it with some level of accuracy and destroy it with this radiation.

The tumors we’ve focused on are tumors where surgery is inherently difficult. For example, the typical surgical option for lung cancer would be making an incision in the patient from front to back around the chest, breaking through the ribs, collapsing the lung and then removing a whole section of the lung that contains the tumor, and then trying to reconstruct the chest.

With the CyberKnife, the alternative is the patient comes in, and a CT scan shows the position of the tumor. We transfer that data to our sophisticated computer system on the CyberKnife, and when the patient comes back — for between one and five treatment sessions lasting half an hour to an hour — they lie on the couch, often in their street clothes, and the system destroys the tumor.

What we do to minimize the risk leaving tumor cells behind is use multiple imaging modalities. With some tumors, it’s acknowledged that CT scans won’t show the extent of the tumor. Other imaging modalities such as magnetic resonance imaging or PET are better at showing how far the tumor has spread. With the CyberKnife, during the planning process, it’s possible to bring in all those different types of images and overlay them just to make sure that the volume that’s finally treated with the CyberKnife really does contain all the tumor cells.

Q: What’s your background, and how did you come to join the company?

A: I joined in early 2002, at the point when the CyberKnife had been through its R&D phase and was ready for commercialization and had just obtained FDA clearance. I’m actually a radiation physicist by training, worked most of my previous career in clinical treatment and at various companies which are in the radiation treatment field. As a result, I have a clinical and technical background and a commercial background too, so it was a good fit for me personally.

Q: Can you spell out what Accuray’s distribution and R&D deal with Siemens means for your company on the global stage?

A: There are really three elements to it. We’re a capital equipment company, we’re selling the CyberKnife for multiple millions of dollars. Most of the players in the field of capital medical equipment are huge international companies. We’re not, we’re still growing and relatively small. But we’ve been successful, and we now have more than 200 systems installed, and we do have a worldwide distribution channel.

So the key for our relationship with Siemens on the sales side is to look at the type of sale where we may not even be invited to participate. For example, somebody’s building a whole hospital or they’re building a whole department, and they’re looking for all the equipment they need from one vendor. With the arrangement with Siemens, we have the ability to include a CyberKnife as part of that purchase.

The other elements of the contract relate to research and development. There’s a short-term element whereby we will take some of the very, very high-level features of the CyberKnife and make them available to [Siemen’s] radiation therapy machines. So even though the clinical objectives of radiation therapy and radiosurgery are somewhat different, there’s still some benefit to making radiation therapy treatments more accurate.

Another part of that would be … one of the most aggressive areas of imaging is imaging that shows details of what’s happening inside the tumor, perhaps in areas of very rapid tumor growth or tumor cell intensity. It could be that future tumor treatments are designed better if we can match the intensity of the radiation to the intensity of the tumor cells.

Q: How did the downturn in the capital expenditures market affect Accuray’s fortunes over the past few years? Do you see signs of improvement in that sector?

A: The market as a whole seems to be improving. We have some cautious optimism about the market generally improving and access to capital improving.

In terms of how we weathered the recession, we actually did better than most companies, we feel. The main reason for that is that, from the beginning, because radiosurgery didn’t exist as a field, we’ve been focused on clinical proof. We sell to people who buy into the idea that this is a viable alternative to surgery, and they do that on the basis of the clinical value of the product.

We’re saying, “Look, this is a brand-new revenue stream, a brand-new treatment modality. It will bring in new patients and offer a new type of treatment that you just can’t offer right now.” So the model is slightly different, and that’s why I think we did better than most companies.

Q: In your view, what’s the biggest challenge facing the medical device industry?

A: Generally, I think people would say it’s the uncertainty of healthcare reform and where that will lead us. We have fairly strong views on that. We’re a cancer treatment company. Healthcare reform should, in the end, lead to greater access throughout the U.S. to early detection techniques; people are more likely to have cancers diagnosed at an earlier stage, simply because a larger group of patients have access to those diagnostic resources.

For us, we feel it’s good news. A larger number of patients with tumors that are discovered earlier, rather than later when they may have already spread to the rest of the body, they are patients who would benefit significantly from the CyberKnife treatment. From our perspective, greater general access to these diagnostic imaging and early diagnoses will be of benefit — primarily to patients, but also to Accuray as a company.

Q: What about the 2.3 percent excise tax that will be levied on device makers starting in 2013?

A: I think the industry as a whole has yet to decide how that’s dealt with, whether those additional costs are passed on to the end user, the customer, in all or part or whether they’re absorbed inside the company. Either way, pricing will likely be adjusted, so it’s difficult to know who will bear the burden of that.

Q: Can you talk about other products Accuray has in the pipeline?

A: We can talk in generalities; we mostly don’t release details of specific products within the pipeline.

We are an innovation company, and there’s a specific reason for that. We have, from the beginning, recognized that CyberKnife started as a generic tool for radiosurgery. As we’ve learned more and more about how it’s used for, say, lung cancer or spine cancer or prostate cancer, we’ve recognized that we need to make continuous improvements as we gather clinical data and as we gather clinical knowledge.

The areas we’ve tended to improve in over the years are accuracy, ease of use, the ability for example for the CyberKnife to move and track a moving target such as a lung tumor as the patient breathes, but still maintain the same level of accuracy.

The Massachusetts Medical Devices Journal is the online journal of the medical devices industry in the Commonwealth and New England, providing day-to-day coverage of the devices that save lives, the people behind them, and the burgeoning trends and developments within the industry.

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