Varian Medical Systems Inc. VAR continues to expand its international presence. The company recently inaugurated a local strategic unit in Saudi Arabia in collaboration with El Seif Development Group. The announcement follows positive tidings like fresh contract wins in the Netherlands and growing product adoption in Africa and Asia-Pacific.
International markets are quite under-equipped to address the growing occurence of cancer. It has been estimated by the World Health Organization (WHO) that annual cancer rates around the world are projected to increase 70% (approximately 22 million) over the next two decades from 14 million in 2012.
We believe Varian’s decision to open a local unit will provide cost-effective treatment to cancer patients in the Middle East. Advanced radio therapy offerings like TrueBeam will help clinicians address the needs of cancer patients in Saudi Arabia, where Varian has approximately 22 linear accelerator systems installed to date. Varian is also equipping the region’s first proton therapy center at King Fahad Medical City in Riyadh.
We note that Varian’s ProBeam proton therapy system is being increasingly employed at various proton therapy centers for the treatment of cancer. The ProBeam technology is currently being used to treat patients at the Scripps Proton Therapy Center in San Diego, the Rinecker Proton Therapy Center in Munich, and the Paul Scherrer Institute in Switzerland.
Varian has also won contracts in England and Denmark. Most recently, the company was selected to equip and service the new multi-room HollandPTC in Delft, the Netherlands. According to Varian, the installation of its ProBeam proton therapy system is set to be around mid-2016. Patient treatment is expected to begin in the second half of 2017.
Varian recently completed the financing for the Maryland Proton Therapy Center (MPTC), which was being carried out by Deutsche Bank AG, Varian and several private investors. Located in Baltimore, the facility aims to bring proton therapy to Baltimore and the Mid-Atlantic region.
The MPTC will be equipped with Varian’s ProBeam system. The company expects to book an equipment order worth approximately $87 million in the third quarter of fiscal 2015. Varian has also signed a 10-year service agreement valued at approximately $65 million.
Our Take
Though the Proton Therapy segment is still small, owing to the relative experimental stage of the business, we believe that the future projections are significantly bright. The growing private markets in China and Brazil are expected to present strong growth opportunity to the company in 2015. We also believe that the upcoming VitalBeam product will present significant growth opportunity for Varian in the long run.
Nevertheless, intensifying competition in the oncology market is a major concern. The Imaging Component segment is expected to remain sluggish at least for the next six months owing to weakness in security and inspection products and lower demand for Varian’s panel and tube products.
Meanwhile, owing to the strengthening of the U.S. dollar, the company is facing pricing pressure from Japanese and European manufacturers in the Imaging Component segment, which will remain a headwind for the segment over the next several quarters.
Stocks to Consider
Currently, Varian has a Zacks Rank #3 (Hold).
Better-ranked stocks in the industry include LDR Holding LDRH, Cepheid CPHD and Globus Medical GMED. While LDR Holding sports a Zacks Rank #1 (Strong Buy), both Cepheid and Globus Medical carry a Zacks Rank #2 (Buy).
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