Varian Medical SystemsBy 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

Beta

Beta SD Weighting

1 Year Daily 0.98 0.12 35.00%

3 Year Daily 1.02 0.04 40.00%

5 Year Weekly 1.04 0.03 25.00%

3 Year Daily Hamada 1.31 0.00%

Analysis Company Beta 1.01

Questions

BUYFor Tall Firs and Svigals’ portfolio