Varian Medical Systems By KJ Neish

History ›Originally incorporated in 1948 as Varian Associates, Inc. ›Changed name to Varian Medical Systems, Inc. in April 1999 ›Fiscal Year-end Sept. 28, 2012 ›1Q results Jan. 23, 2013

The Company ›Oncology Systems (78% 2012 revenues) ›X-ray (18%) ›Other (4%)

Oncology Systems segment ›Provides medical devices and software for treating cancer –Linear accelerators –Brachytherapy afterloaders –Simulation and verification software ›Hospitals, cancer care clinics, government institutions, research facilities, doctors’ offices

Radiation Therapy ›The use of focused energy to kill cancer cells ›Used alone or in combination with surgery or chemotherapy ›Different forms of treatment –The most common form involves delivering x-ray beams ›65% increase in new cases of cancer from 2008 to 2030

X-ray Products segment ›Design and manufacturer of x-ray components –X-ray tubes –Flat panel detectors ›Toshiba Corp., Hitachi Medical Corp., GE healthcare ›InfiMed acquisition ›20-25% market share

Other ›Ginzton Technology Center (GTC) ›Security and Inspection (SIP) ›Varian Particle Therapy (VPT)

Growth ›Emerging markets ›Strategic global partnership with Siemens Medical Systems ›Commercialization of proton therapy ›Product innovation

Emerging Markets ›2 linear accelerators/million. US has 13 ›China ›India –Regulatory clearance in India –Population over 1 bil. –1 mil. new cases of cancer each year ›Brazil –Competing for public tender of more than 80 units –Reverse auction bidding –Announced in Jan-Feb

Strategic Partnership ›Mutually market each other's products ›Co-develop opportunities

Proton Therapy ›Latest innovation in the radiotherapy field ›Proton particles ›Less invasive, better targeting ›Vital organs less at risk –70% reduction in radiation exposure ›Large-scale construction projects ›Emory University and University of Maryland

-National Association for Proton Therapy

Product Innovation ›EDGE –510(k) clearance –Integrates technology with tools for real-time imaging and tracking –Launched in Nov –Lung, liver, and pancreatic cancer

Comparable Analysis (0%)

Discounted Cash Flow (100%) ›Revenue ›Smaller margins ›SG&A increase as a % revenue ›4% intermediate growth rate ›Cost of debt calculated based on last issuance ›9.35% undervalued

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