Benzinga  Apr 11  Comment 
Medical device stock Varian Medical Systems, Inc. (NYSE: VAR)’s share price may be artificially inflated due to what GlassHouse Research says are “enhanced” earnings. Back in October 2016, Intereconomica.com reported General Electric...
Forbes  Jan 30  Comment 
In trading on Monday, shares of Varian Medical Systems Inc (NYSE: VAR) entered into oversold territory, hitting an RSI reading of 24.4, after changing hands as low as $76.94 per share.
newratings.com  Jan 25  Comment 
WASHINGTON (dpa-AFX) - Varian Medical Systems (VAR) revealed earnings for first quarter that retreated compared to the same period last year. The company said its bottom line declined to $70.3 million, or $0.75 per share. This was down from...


Varian Medical Systems, Inc. (NASDAQ : VAR) is the world's largest producer of cutting-edge radiation therapy equipment used to treat cancerous tumors. Its other, significantly smaller businesses include X-ray tubes for scientific research and X-ray security equipment.[1] The company earned $2.2 billion in revenue and $319 million in net income in 2009.[2]

Varian holds about 60% of global market share in radiotherapy equipment. High switching costs protect Varian's market share since a brand-new system costs $2-3 million, compared to upgrades like Varian's newest product RapidArc, which cuts treatment time and costs $400,000. On the other hand, Varian's "open systems" approach lets customers integrate its upgrades with old equipment from competitors, presenting an additional opportunity to steal market share. The reverse is not true of all its competitors.

Despite its large market share, Varian is pressured to continually innovate as the US market for its existing products becomes saturated. To expand its product line, Varian acquired Accel Instruments, a manufacturer of proton therapy equipment and proton accelerators. Proton therapy is the most advanced radiation treatment available, with fewer than ten treatment centers in the US.[3]

Worldwide, larger number of cancer cases each year and the gradual acceptance of advanced technologies overseas lead Varian to expect increased growth in Europe and Asia. Domestically, an aging population sustains demand for radiotherapy. However, the slumping US economy continues to limit US hospitals' ability to secure financing for new equipment and the ratio of treatment centers to patients in the US is already the highest in the world, which suggest slower growth in North America.

Company Overview

Varian is the world's leading manufacturer of radiation therapy equipment, or oncology systems, although it also produces X-ray tubes and X-ray security scanners. The vast majority of its revenue comes from sales of oncology systems to hospitals, clinics, and universities domestically and overseas. Its more advanced equipment is used to perform intensity modulated radiation therapy (IMRT), image guided radiation therapy (IGRT), and stereotactic radiotherapy, and it has begun to make forays into proton therapy technology.

Business Segments[4]

  • Oncology Systems (81% of sales): Radiation therapy equipment uses beams of radiation to kill cancerous tumors. More sophisticated equipment can generate more targeted and precise radiation, which lets doctors increase the intensity of the beam or cut down treatment time. Growth in the US market is due to sales of equipment used in IGRT, one of the most advanced therapies. However, overseas clinics and hospitals often lag behind the US technologically.
  • X-ray Products (15% of sales): Varian’s X-ray components division manufactures X-ray tubes and flat panel digital image detectors for X-rays, which can be used in place of X-ray film. The X-ray tubes market is more dependent on pricing and less dependent on technological innovation than the oncology systems market. As a result, Varian has less of a competitive advantage in this sector than in its main business.
  • Other Products (4% of sales): This division includes X-ray security scanners and revenues from Accel's backlog of proton systems. The X-ray security scanners produced by Varian are used to inspect cargo and to monitor border crossing areas.

Business Growth

FY 2009 (ended October 2, 2009)[2]

  • Net revenue increased 7% to $2.2 billion. Product revenue increased by 5% while service contracts and other revenue increased by 18%.
  • Net income increased 14% to $319 million.

Trends and Forces

Rapidly changing cancer treatment technology forces continual innovation

State-of-the-art radiation therapies change quickly as new products are developed and reach the market, and treatments become obsolete just as quickly. From 1999 to 2003, IMRT sales bolstered revenue growth in the United States, but domestic IMRT sales have since slowed as the market became saturated. In contrast, one of Varian's newest technologies, RapidArc, has received many orders since its federal approval in January 2008. Furthermore, researchers have begun to explore alternative cancer treatments such as genetic therapy, although this technology is still in early developmental stages.[5]

Growing number of cancer patients drives demand for radiotherapy

The World Health Organization estimates that over 11 million people each year have new cases of cancer globally and predicted the annual number of new cancer patients to rise to 15.5 million by 2030.[6] Approximately 50% of cancer patients in the United States receive radiation therapy [7], and some doctors believe that this percentage will increase since the most precise, targeted radiation therapy can replace surgery. [8] To prevent unreasonably long wait times for patients, more hospitals and clinics will need to install radiation treatment facilities. However, growing demand for radiotherapy equipment is also contingent on the availability (or lack thereof) of more effective technologies.

Hospitals and research institutions require large budgets and financing for products

Varian's product offerings range in cost from $2 million for conventional radiation therapy accelerators to upward of $60 million for accelerators used in proton therapy. Equipment used for particle physics research varies from customer to customer, since most is highly specialized, but has costs starting in the billions of dollars. During years of low interest rates, US hospitals used auction-rate securities to raise capital, but these markets dried up when the credit crunch hit the global economy.

Viability of new technology depends on inclusion in insurance plans

Most insurance plans cover IMRT and IGRT therapy, including Medicare and Medicaid in the United States. Not all insurance providers cover proton therapy, and others only cover the treatment in case of a specific diagnosis. Proton therapy treatments can be up to twice as expensive as conventional radiation therapy, and physicians continue to question whether the treatment is worth the additional cost. Only five clinics in the United States have proton therapy facilities. Although demand has been growing and over 30 new facilities have been planned, demand depends in part on insurance companies' willingness to reimburse for proton radiation treatment.


Varian competes directly with large electronics companies such as Siemens and Philips, and with smaller, more specialized radiation therapy equipment companies including Accuray, Elekta, and TomoTherapy. Indirectly, Varian competes with all other cancer treatment equipment makers, since different cancer treatments are sometimes interchangeable or used in conjunction. Varian holds a commanding 60% share of the world market share and an approximately 67% share of the US market. Out of the major radiation therapy providers, Varian is best poised to capture sales from foreign markets.

The most distinctive feature of Varian's products is their interconnectivity with other Varian products and competitors' products. However, Varian's systems are marketed as a package instead of by component, and thus Varian is not always price competitive if the customer does not want all elements of the package. Siemens and Philips also produce IMRT and IGRT equipment and are larger than Varian, giving them more financial clout. Elekta, TomoTherapy, and Accuray all manufacture more specialized high-precision equipment that lets doctors administer a single high-intensity dose of radiation to a tumor with minimal fear of damaging the surrounding tissue.

  • Accuray: the CyberKnife is the only robotic radiation therapy system approved for use outside the brain and has been purchased by the most international customers out of the major radiation therapy companies. However, it is not yet covered by all insurance policies overseas, for instance in Taiwan.
  • Elekta: produces versatile systems similar to Varian, but its best-known product is the Leksell Gamma Knife, used to perform radiosurgery on brain tumors and eliminating the need for open brain surgery.
  • TomoTherapy: Hi-Art Treatment System delivers continuous 360 degree IMRT to the patient.


  1. VAR 2009 10-K "Overview" pg. 3-4
  2. 2.0 2.1 VAR 2009 10-K "Selected Financial Data" pg. 54
  3. The National Association for Proton Therapy
  4. VAR 2009 10-K "Products" pg. 7-11
  5. VAR 2009 10-K "Research and Development" pg. 16-17
  6. "Are the number of cases of cancer increasing or decreasing in the world?," WHO, 1 April 2008
  7. "Radiation Therapy: Questions and Answers," National Cancer Institute
  8. "State calls for more cancer facilities," The Boston Globe, 18 September 2006
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