Leading oncology and X-Ray products company, Varian Medical Systems (VAR) recently announced that it has booked an $88 million order to supply its ProBeam system to the Scripps Proton Therapy Center (being setup in San Diego under an agreement between Scripps Health, Scripps Clinic Medical Group and Advanced Particle Therapy of Nevada).
Under proton therapy, certain forms of cancer may be treated with fewer side effects than conventional radiation treatment. Proton therapy reduces damage to nearby healthy cells. This treatment may be used for many common forms of cancer.
The order for this equipment at the facility, which will be run by Scripps Health, was placed by the California Proton Treatment Center, a special purpose body created by Advanced Particle Therapy (working as developer for the project valued at $225 million).
In conjunction with booking the order in the fourth quarter of the current fiscal year, Varian recognizes sales of this system under the "percentage of completion method”. In addition, Varian has inked a 10-year deal, worth about $60 million, for servicing its ProBeam equipment, which is scheduled to be launched in 2013. The company will recognize service revenues during the life of the contract.
Varian is teaming with ORIX Capital Markets of Dallas for a loan facility of $165 million to fund the completion and subsequent startup of the upcoming Scripps Proton Therapy Center. In this regard, the company is committed to a $115 million loan obligation through its Swiss subsidiary while ORIX is expected to provide a $50 million loan. Advanced Particle Therapy has also raised $60 million of equity funding via the Williams Financial Group in Texas.
About 80% of the construction of the 102,000 square feet Scripps Proton Therapy Center has been competed. Significant portions of Varian’s ProBeam system have been dispatched to the new center and installation is expected to commence in the forthcoming weeks. Besides providing treatment, the center will also function as a research facility for proton therapy.
Varian is a leading manufacturer of integrated radiotherapy systems for treating cancer and a premier supplier of X-ray tubes for diagnostic imaging applications. The company operates in a technology-driven environment where success depends on the use of new technology, product development and upgrades. In the radiation oncology market, Varian competes with Accuray (ARAY). We currently have a Neutral rating on the stock.
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