When Euan Thomson landed in the corner office at radiosurgery device maker Accuray (NSDQ:ARAY) in 2002, the company was just preparing to penetrate a very well-established market.
Ignore what everyone else is doing.
"I know the reason we’ve been able to build Accuray in a very well-established market that’s dominated by these larger players is that we’ve never paid much attention to the opinions or messages of our competitors," Thomson told MassDevice. "You have to go into this with a firm belief that your competitors are not the people to dignify your products."
Thomson credits his background as a customer of radiosurgery device makers during his days as a medical physicist in U.K. hospitals with reinforcing his belief that the customer should drive product development.
"I very much got the impression in those days that customers would attend a trade show so that industry could tell them what their priorities were and what they should be focusing on, in terms of innovation, and that really isn’t the right way around," he said. "It should be customers telling industry what their needs are and customers partnering with industry to explore the clinical benefit for patients."
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. Last summer, Accuray completed a $277 million acquisition of TomoTherapy, a move that doubled its market share overnight.
When MassDevice caught up with Thomson, who we’ve gotten to know in a handful of discussions in the last few years, he told us about the tough choices that go along with absorbing a bigger company and how his partnership with customers gives him a leg up against the big dogs.
MassDevice: How did you land in the corner office at Accuray?
Euan Thomson: Accuray was, about 10 years ago, an early-stage company still in the R&D phase, but just at the point where it was going commercial. It had just achieved its FDA clearance to use CyberKnife for treatments anywhere in the body, and it was just a terrific opportunity. I was recruited in to take the company out of the R&D phase and into the commercial world. It was just such a great technology and such a great opportunity that I just couldn’t not do it. And it’s been a big success. Our first commercial year was really in 2002. We now have between 200 and 250 of our systems installed worldwide and we recently acquired TomoTherapy, a Madison-based company, and overall, between the 2 systems, we have more than 600 systems installed worldwide. The company’s grown to over 1,000 people and this year we’re targeting over $400 million in revenue.
MassDevice: What has changed about the company in the decade you’ve been there? What’s the story of Accuray?
ET: It’s been a very rapid growth story, and no more so than this last year when we acquired TomoTherapy and the company doubled in size overnight. So it’s been a strong growth story.
I think that there’s a strong feeling of passion inside the company for what we’re contributing to cancer treatment. Both the technologies that we manage, the CyberKnife and the TomoTherapy system, are systems that can really improve and, in many cases, save the lives of cancer patients, giving treatment where no other treatment is available. I think there’s a strong sense of purpose inside the company that’s persisted from those early days all the way through to now.
MassDevice: What are some of the lessons you’ve learned in taking a company from its 1st commercial product to becoming a bigger player in the market?
ET: One of the lessons is to be prepared and open to change. I think where a lot of companies fail is that they set out with an idea in mind about how the product is going to be accepted and how the market is going to react, and the reality is that it’s very hard to predict. You really have to be listening to customers, very observant about how products are actually used, and it can be significantly different from your original ideas. In a similar way, be prepared to change inside the organization itself. Every year for us is a new phase of the company’s development, and you have to recognize that the people who come in at one level may not be the right people – they may not even be comfortable when you get to a different level and a different scale. Be prepared for change and new ideas, and bring people in where you would like to be, not just where you’ve come from. Taking yourself and the company outside of your comfort level at each stage of development is critical. It’s very easy for new companies to get stuck in a rut and just keep doing the same thing and lose sight of the fact that they’re at a new phase and the environment has changed.
MassDevice: What was it like to merge with TomoTherapy and manage a doubling in such a short period of time?
ET: It was obviously a challenge. We were very fortunate that the company that we’re acquiring in TomoTherapy had a very similar background and culture to Accuray. In fact, it had the same customer base to which CyberKnife is sold and a similar culture inside the company, one that is motivated very much by the benefit of the technology and a strong belief that it really did help cancer patients. I think we found that we had a lot in common in the legacy of Accuray and the legacy of TomoTherapy as the companies came together, but nevertheless it was a time of significant change – changing roles, changing positions. It was very hard work and, I think, sort of physically and emotionally draining for lots of people involved.
But it’s been a big success. When we start to look back on it now, the speed at which we were able to integrate and really bring 2 organizations together without losing any momentum in the market was a credit to the entire team. In summary, I guess, hard work but very worthwhile and ultimately very rewarding as we’ve seen the 2 organizations come together so fast.
We’re very much advanced through the process. Everybody knows exactly what their position is in the new organization and the larger organizations, they’ve all got a clear understanding of exactly their role and we’re now down to the point of integrating the systems and refining the processes that overlap between the organizations, such as the financial management of the company. I think we’re very much advanced, we’re really ahead of where we thought we might be at this time when we first started the integration.
MassDevice: So things are going even better than expected.
ET: Yes, and one of the most rewarding things, I think, has been the market response. We went into this not knowing how our customers and their customers would respond, but it’s actually been very positive. Radiation oncology is a field that’s dominated by a small number of large companies. Bringing 2 smaller players together under 1 roof and giving customers 1 point of contact and having a larger footprint and a larger market presence was very positively received. Ultimately success is really going to be measured by how well customers in the market respond rather than whether we feel good about the integration. That’s the real litmus test, and we can say for sure that it’s been a real success. Customers responded extremely well.
MassDevice: Since the market is dominated by the big dogs, how does Accuray, as a smaller player, plan to compete?
ET: We’ve always been in that position, and the market dynamic hasn’t changed that much. Both Accuray and TomoTherapy started out as small players, small companies trying to take market share from these big competitors, and we’ve been very successful. We’ve come, in the past 10 years, from 0 installations to more than 600 installations. Most of those have been installations that have taken treatment space from these larger competitors. Overall, we’re growing by approximately 15% to 20% in terms of our install base every year, and that’s a market dynamic that continues. Mainly, we do this from the basis of having the premier products on the market. I think the CyberKnife radiosurgery and the TomoTherapy systems for radiation therapy are technologies that were designed for the state-of-the-art treatments today. When we looked at our competitors, even though they’re larger companies, the technologies that they have really haven’t changed in basic architecture for 60 or so years. They really look the same and they have the same basic functionality. So we remain successful by having state-of-the-art technologies and being very fast innovators.
MassDevice: Does being smaller allow you to be more fleet of foot?
ET: Yes, I think. Being a large, well-established company is a benefit in some ways, particularly for capital equipment, but it can be detrimental in other ways. It can mean that a company can be very slow to respond to market needs, where as a smaller player, as we have been, we remain a fast-moving organization, one that has a reputation for creativity and innovation. And that’s a common culture between the 2 companies that we’ve retained. I think our customers are energized by the innovative spirit within the organization, too. They regularly have seen ideas that they’ve expressed to us appear as products within a relatively short space of time, and I think that keeps them engaged with our organization, and it makes them realize that they do have a voice here – that their ideas and their requirements will actually be listened to.
MassDevice: So you try to forge a partnership with your customers?
ET: That’s exactly right, we try to partner very much with our customers and understand their clinical requirements. Strangely, I think that’s unusual in the world of capital equipment. It perhaps shouldn’t be, but I think perhaps it is. The real benefit to the patient comes from thinking about the clinical objectives of our customers and not being distracted by what our competitors are doing. Particularly in this market, it’s 1 where the history of the technological development has really been with companies with similar technologies just competing with one another, and sometimes it appears that each company is driving the other company along rather than any one player thinking about the needs of the patient.
Let me give you an example. The other companies that are in the field have a sort of C-arm design to their linear accelerators, and when you look at any of their technologies they look pretty much the same. They look pretty much the same as each other and they look pretty much the same as technologies that were around 50 or 60 years ago. The development that’s taken place has been relatively small refinements – making the radiation come out faster or changing the radiation beam shaping technology. It often seems like they’re making these changes in response to what another company in the field has done.
We have a different approach. As well as funding technical R&D, we fund clinical work, clinical studies. The reason we do that is because we want to move the clinical field forward, and there’s a very strong relationship between our clinical development program and our technical development program. By funding clinical studies we understand the clinical priorities of our customers, we understand how patients might benefit and where the field is moving. We use that as a guide for our R&D. You can see, if you look back over a history of Accuray and our R&D efforts, you’ll see a strong link between the clinical development and the technical development. An example of that would be treatment of lung cancer with CyberKnife, where we’ve had a strong path of technical development that’s led to an exponential rise in the use of lung radiosurgery to destroy lung tumors in inoperable lung tumors in a non-invasive way.
We’ve been funding both clinical programs and technical research in that area, that’s led to a sort of exponential rise. We’re currently funding an international study that’s being run by M.D. Anderson [Cancer Center] to look at non-invasive CyberKnife radiosurgery in direct comparison with surgery for operable lung cancer. So there are patients that a surgeon could operate on, it’s not inoperable cancer, but they’re doing a direct comparison of surgery with non-invasive CyberKnife radiosurgery. We learn from those experiences how we can improve the CyberKnife even more, and that’s somewhat unusual, again, in the world of capital equipment. It has nothing to do with achieving FDA clearance. We have FDA clearance for treatment with lung cancer, it really is a way of trying to understand the future needs of patients.
MassDevice: Accuray posted a strong year in 2011 with a growing customer base and the merger with TomoTherapy. How do you plan to keep that momentum going?
ET: Oh, we have plenty of ideas to develop. We’ve actually, since the acquisition, increased the R&D expenditure of the 2 companies in the 1st half of the year by about 15%. On a pro forma basis for the 1st half of our fiscal year R&D expenses increased about 15%, and that really reflects the number of ideas we really have about how we can bring the technologies forward. It’s a very exciting time in the field of radiation oncology, new clinical ideas coming through, ways of making treatments individualized and personalized to patients, we have the state-of-the-art platform. So we’re strongly motivated by making use of more change, improving the lives of cancer patients even more.
MassDevice: Since you view the market’s big players as very aware of what their competitors are doing, do you think Accuray’s philosophy will rub off on other companies?
ET: I would hope so. I know there are many great companies out there and there are many great people who have a very technical focus. But when you look at the capital equipment world, particularly the world of radiation oncology, a strong impression that I’ve often had is technology for technology’s sake, and I think that’s not the right approach. We have to invest in clinical benefit and we owe it to ourselves and our customers to prove clinical benefits of the technologies that we release. If we can’t do that then we should really question our right to ask customers to pay for them.
MassDevice: This seems to be something you feel very strong about.
ET: Yes, I feel very strongly about it. I think that it speaks to my early days as a customer. I started out my life working in a hospital, actually working in the field or radiation oncology. I very much got the impression in those days that customers would attend a trade show so that industry could tell them what their priorities were and what they should be focusing on, in terms of innovation, and that really isn’t the right way around. It should be customers telling industry what their needs are and customers partnering with industry to explore the clinical benefit for patients. When new technologies come out, they should be backed by clinical evidence that they have real value.
MassDevice: Is it hard to stay focused on that core philosophy when you have to consider Wall Street interests and market pressures?
ET: Not so much Wall Street because ultimately good business comes from good products, and good products are products that the market receives well. If you’ve worked with customers to define those improvements as new technologies then they will be well-received by the market and ultimately you’re bringing value to shareholders. I think those aspects are strongly aligned.
In terms of distraction, it is easy to get distracted by what your competitors do. I know the reason we’ve been able to build Accuray in a very well-established market that’s dominated by these larger players is that we’ve never paid much attention to the opinions or messages of our competitors. It’s easy to get distracted by what your competitors are saying about you or about your products. You have to go into this with a firm belief that your competitors are not the people to dignify your products. It’s customers that buy products, not competitors, and by listening and engaging with your customers and thinking about their needs and their requirements, that makes it a success.