Varian's Clinac Goes to Kenya - Analyst BlogMonday, November 19, 2012
Oncology and X-Ray products company Varian Medical Systems (VAR) continues to make strides in the international market. With the installation of its Clinac DMX equipment at The Nairobi Hospital in Kenya, the company has made headway in the country as this marks the onset of radiotherapy treatments for local cancer patients.
This presents an opportunity for Varian to venture into underpenetrated east and central Africa. According to World Health Organization (WHO) statistics, the age-standardized mortality rate by cancer (per 100,000 population) was 139 for Kenya compared with 144 for WHO African region (in 2002). Given the demographic trends and rising health care expenditure in Kenya, the country will have high growth potential for Varian’s offerings.
According to the International Agency for Research on Cancer of the WHO, annual cancer rates around the world are projected to increase by 50% to 15 million new cases by the year 2020. The expansion of Varian’s offshore base should help the company address the growing demand for radiology equipment in the under-equipped emerging markets.
We note that Varian has been working on expanding its international presence. The company recently gained clearance in the Chinese market for its Unique systems. Varian also set up a subsidiary company in South Korea, Varian Medical Systems. The new entity will gradually don the role of a domestic base for Varian’s strategic business units.
Varian is poised to increase its market share in radiation oncology. It currently enjoys healthy demand for its TrueBeam technology, which has meaningfully contributed to its net order oncology growth. The company’s latest offering -- EDGE Radiosurgery Suite might be a breakthrough in cancer treatment. We also note that Varian’s competitor in the radiation oncology market Accuray (ARAY) continues to lag in terms of growth.
Moreover, Varian enjoys a strong balance sheet marked by low debt and moderate cash. The company from time to time uses a part of its healthy cash flow for share repurchases.
However, uncertainties regarding reimbursement and a still weak hospital capital spending environment across many developed countries, especially in Europe, are significant challenges. The ongoing softness in the market for freestanding clinics is another short-term headwind.
We currently have a long-term Neutral recommendation on Varian. The stock carries a Zacks #3 Rank, which translates into a short-term Hold rating.
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