Dive Brief:

• Siemens Healthineers will buy radiation oncology systems and software maker Varian Medical in an all-cash deal valued at $16.4 billion, the companies announced Sunday, confirming a Bloomberg report Saturday.
• The biggest deal in medtech so far this year gives Siemens Healthineers, which formally spun out of the German conglomerate via a 2018 IPO, a suite of cancer treatment technologies, including a growing proton therapy business. Before the Healthineers company was created, Siemens partnered with Varian for years to in part offer Varian software on Siemens equipment.
• The companies expect the deal to close in the first half of next year. The Varian brand and its approximately 10,000 people will continue to operate as an independent company under Siemens after the deal closes, the companies said.

Dive Insight:

The deal is an outlier in a year when medtech deal values were down 88% in the first half of the year, according to an analysis by PwC.

The combination of Siemens Healthineers and Varian Medical Systems tops Thermo Fisher's bid for Qiagen, originally valued at $11.5 billion before Thermo Fisher increased its per-share offer for Qiagen by 10% in mid-July.

In the view of analysts at Jefferies, the Siemens-Varian deal may get the ball rolling on pandemic-era medtech M&A, potentially signaling “a kickoff of broader consolidation” spurred by companies trying to “contemplate the best road ahead out of what could be a lengthy recovery cycle post COVID.”

Siemens Healthineers plans to acquire all of Varian's outstanding shares for $177.50 in cash. That's a premium of 24% over Varian's closing price Friday, and a 42% premium over the 30-day weighted volume average closing price.

But those stock prices are depressed due to the timing of the pandemic, and the Jefferies analysts wrote in the same note that that could leave room for an increased bid. The analysts also raised concern over potential antitrust obstacles, noting that the combined company would account for more than 70% of the radiation oncology equipment installed worldwide, the vast majority originating from Varian.

In announcing fiscal third quarter results Sunday, Varian revealed its revenues fell 16% to $694 million as many health systems have reined in spending on capital equipment amid financial strain from managing COVID-19. About 94% of that revenue came from oncology systems, down 17% on the year. Likewise, orders for oncology systems were down 14%.

Proton technologies brought in $33 million in revenue, a gain of 6%, which Varian said was mainly driven by growth in services revenue.

But going forward, Siemens Healthineers and Varian see worldwide demand for high-tech cancer treatment growing to a market worth over $20 billion, boosted by growth in emerging markets.

In reporting the prior quarter's results in May, despite eking out a 2% increase in revenue, Varian said early effects of the pandemic resulted in delays to oncology procedures and to installations of equipment in hospitals.

Siemens Healthineers has been active in diagnostic testing for COVID-19, with its antibody test gaining recognition from U.K. public health regulators as having higher accuracy than tests from competitors Abbott, DiaSorin and Roche. 

FDA said Friday it authorized two Siemens Healthineers "semi-quantitative" serology tests meant to estimate the amount of antibodies in a person's blood — the first OK'd in that category. But FDA in vitro diagnostics lead Tim Stenzel hedged the usefulness of antibody test results for now.

“There are still many unknowns about what the presence of SARS-CoV-2 antibodies may tell us about potential immunity, but today’s authorizations give us additional tools to evaluate those antibodies as we continue to research and study this virus," Stenzel said in a statement.

Still, any COVID-19 testing benefit at Siemens Healthineers was offset by declines in testing for routine care; the diagnostics business fell 15.9% during the recent quarter, the company reported Sunday. Overall, revenues during the quarter were down 6.9% and Siemens Healthineers expects them to be flat on the year.

This story has been updated with analyst insights and Siemens Healthineers’ quarterly results.