Medical device maker Varian Medical Systems Inc. VAR has been recently chosen for equipping and servicing two new national proton therapy centers in England, with its ProBeam proton therapy system. Selected through a public tender, Varian Medical will provide equipment and service to aid operations in two three-room centers in London and Manchester for an estimated £80 million.
The company expects to sign the contract and book the equipment portion of the order this summer. Equipment installation is expected to take place from Aug 2017, with patient treatment likely to begin in 2018.
Proton therapy is essentially an improved therapy compared to X-Ray radiation in the treatment for cancer. With proton therapy, the risk of damage to healthy tissues and potential side effects is reduced because the beam stops and deposits dose within the tumor site rather than passing all the way through the patient. Apart from offering better treatment, proton could lower the overall costs of healthcare as well.
With this latest project, Varian Medical expects to leverage its existing U.K.-based engineering and logistics infrastructure to deliver industry leading technology while meeting the NHS (National Health Service) requirements for value for money. The company also expects this contract to result in a number of additional highly-skilled engineering jobs and an expansion of its UK organization, which currently includes both manufacturing and support.
Varian's 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.
Last month, Varian Medical’s ProBeam proton therapy system was also selected for a new national proton therapy center in Aarhus, Denmark. Additionally, Varian Medical has contracts for system installations at eight other sites around the world. We believe that Varian Medical’s promising proton therapy developments hold significant long-term potential for the company.
During the recently concluded first quarter of fiscal 2015 (ended Jan 2, 2015), Varian Medical submitted five out of these eight new proton tenders. We note that the company is making significant progress with its active proton projects, which generated roughly $9 million, or 1.2% of total revenues in the first quarter.
For fiscal 2015, Varian Medical expects revenues to increase approximately 5% from the year-ago quarter (down from the earlier guidance of 5% to 6%). However, this guidance excludes contracted proton projects that are not yet financed or booked into backlog. Management believes that if these projects are booked during the year, the potential upside in revenues and profits could be immense.
Though Proton Therapy segment is still small, given the relative experimental stage of the business, we believe that the projections for the future look bright. The growing private markets in China and Brazil are expected to present strong growth opportunity to Varian Medical in 2015. However, the recent foreign exchange volatility is expected to be a major concern in the near term.
Zacks Rank
Currently, Varian Medical carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical instruments industry include Abiomed ABMD, Inogen INGN and Edwards Lifesciences Corp EW. While both Abiomed and Inogen sport a Zacks Rank #1 (Strong Buy), Edwards Lifesciences carries a Zacks Rank #2 (Buy).
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