$2.7 Billion
NO. OF EMPLOYEES: 6,600

There is an enormous difference between standard X-ray radiation cancer treatment and proton therapy. Although X-ray radiation techniques will control many cancers if administered in sufficient doses, healthy tissues may receive a similar dose and sustain damage because of the clinician’s inability to adequately conform the irradiation pattern to the cancer. As such, a less-than-desired dose is often used.

Delivered by an appropriately futuristic-sounding device called a cyclotron, proton therapy sends a high-energy beam of positively charged particles through the skin toward the tumor. However, the energy distribution of protons can be directed and deposited in tissue volumes designated by physicians in a 3D pattern from each beam used. Protons are also energized to specific velocities, which means they deposit their maximum energy at a specific point within the body. These dose-distribution characteristics mean the radiation oncologist can tune the dose to be stronger at the tumor site while reducing it to surrounding normal tissues.

The proton therapy market is a highly lucrative opportunity area for West Coast-based Varian Medical. According to Market Realist, the global proton therapy market is set to double by 2022. And although the United States currently has the largest proton therapy market, by 2022, the Asian market is expected to triple, and the European market is forecasted to see a double-digit CAGR.

The Varian Particle Therapy (VPT) business, which houses its cyclotron machines, is a relatively miniscule part of the company’s $2.7 billion fiscal 2017 revenue (ended Sept. 29). Comprising just 7 percent of the total 2017 revenue, the promising segment did show double-digit growth from the previous year, rising 13 percent to reach $173 million. The continued production of installation of VPT projects—most notably $56 million of revenue garnered from the 2017 completion and financing of the Georgia Proton Treatment Center—was the main driver for sales expansion.

Varian’s single-room ProBeam Compact system gained momentum through the year with its first three orders. Combined with multi-room U.S. and Chinese orders, Varian booked six orders during the fiscal year. By the year’s end, Varian was delivering proton treatments at five centers globally and several more sites were in the process of being equipped, and were expected to commence treatments in the months to follow.

The business was further bolstered by last May’s Japanese Shonin approval for the ProBeam proton therapy system. ProBeam is the first system offering intensity modulated proton therapy, which enables more efficient and adaptive therapy.

ANALYST INSIGHTS: Varian is aggressively trying to expand into emerging markets—specifically China. It was recently spurned on its $1B+ offer for Sirtex by a Chinese investment competitor. Watch for Varian to “regroup” and make aggressive moves in Asia, with a focus on China.

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

Varian completed the separation of its imaging components business into the established Varex Imaging Corporation at the end of last January. A month before that, however—still within Varian’s fiscal year—the company began a $276 million deal to acquire PerkinElmer’s medical imaging business to fortify the soon-to-be-shed Varex. The business added digital flat panel X-ray detectors serving as components for industrial, medical, dental, and veterinary X-ray imaging systems to Varex’s product mix. The new company will be a high-volume manufacturer of X-ray tubes, flat panel detectors, and high voltage connectors, as well as a supplier of imaging software and specialized accelerators for high-energy X-ray imaging. Varian also received an approximate $200 million cash transfer from Varex Imaging immediately prior to stock distribution.

After the spinoff, Varian became a standalone cancer management company and underwent a fundamental re-brand. According to CEO Dow Wilson, Varian aspires to double the number of patients helped by their products from 3 million to 6 million. Longer term, the company will set its sights on continued global growth in radiation therapy and become the cancer therapy ecosystem for its customers.

The re-branding also welcomed some new faces to the Varian executive team. Throughout the year, the leadership changes and additions included Gary Bischoping Jr. as CFO; Thomas Rodden as chief information officer, Dr. Dee Khuntia as chief medical officer, Corey Zankowski as chief technology and innovation officer; Terilyn Monroe as chief people officer and senior vice president of human resources; and J. Michael Bruff as vice president of investor relations.

Since Varian set Varex off to forage on its own, its $2.7 billion in fiscal 2017 sales actually represents a 15.6 percent drop in revenue from the year prior. Oncology systems—now the majority of the firm’s business—rose a slight 1 percent in revenue to $2.5 billion. Product proceeds dropped 3 percent from the previous year to $1.4 billion. This was primarily due to a revenue decrease from hardware products resulting from a lengthening backlog conversion cycle due to a larger part of the backlog being from emerging markets, as well as customer readiness delays in a number of countries.

Service revenues for oncology systems, however, rose 7 percent to reach $1.1 billion. Increased customer adoption of service contracts as the warranty period expired on TrueBeam systems and an overall larger number of service contracts contributed to this gain. Oncology system revenues were also split almost evenly between the North American and international regions, demonstrating Varian’s ambition to penetrate both established and emerging markets.

Last May, Varian launched the Halcyon system for cancer treatment, and it gained FDA clearance about a month later. Halcyon simplifies and enhances virtually every aspect of image-guided volumetric intensity modulated radiotherapy. It features a 100 cm gantry opening (larger than those on standard CT scanners) that is capable of rotations four times faster than c-arm gantries, and can generate volumetric imaging in 15 seconds. It also features large touchscreens on both sides of the machine for easy patient setup, and according to Varian, is two times quieter than other systems.

“The technology of radiation oncology is evolving at an increasingly rapid rate,” Dr. Dwight E. Heron, director of radiation services at UPMC Cancer Center, and director of oncology at UPMC International, said when Halcyon was released. “New technology that integrates advanced adaptive treatment and imaging in a fully integrated form factor will enable consistent, high-quality, state-of-the-art radiation therapy for even the busiest clinics. As a global cancer care provider, we view such technological advances as a welcome tool in our fight against cancer worldwide.”

Last August, the HyperArc high-definition radiotherapy (HDRT) system conducted its first treatment worldwide in Italy. HyperArc HDRT treatments deliver more compact radiation doses that can fully saturate a targeted tumor and “fall off” sharply outside the target zone, minimizing the dose to specific organs requiring more protection. By the end of the fiscal year, Varian had received 40 orders for HyperArc upgrades.

A month later, the company released Eclipse 15.5, the newest iteration of its treatment planning system. It features proprietary MCO software, which lets clinicians explore the effects of varying clinical criteria—for example, the degree to which certain organs are spared versus coverage of the targeted tumor. To expedite finding the optimal treatment plan with minimal trial and error iterations, Eclipse 15.5 leverages the company’s RapidPlan software and existing optimization workflows. Eclipse 15.5 also supports HyperArc to efficiently plan treatment for and automate the delivery of complex stereotactic radiosurgery.

Varian was also enmeshed in patent litigation with Elekta—a Swedish company that provides radiation therapy, radiosurgery, related equipment, and clinical management for cancer and brain disorder treatment—that reached resolution during fiscal 2017. Last November, an administrative law judge with the United States International Trade Commission (USITC) issued an initial determination in its favor on Varian’s VMAT patents. The 465-page decision found Section 337 violations based on Elekta’s importation and sale of radiotherapy systems using linear accelerator-based VMAT technology. Further, the judge found public interest factors did not preclude relief in this case, and recommended the USITC cease and desist limited exclusion orders preventing Elekta from selling and importing its radiotherapy systems with infringing VMAT capabilities into the United States.

Last April, Varian and Elekta reached a confidential settlement agreement to end the ongoing patent litigation involving VMAT technology. The settlement resolved the multi-year disputes in the United States, Germany, and the United Kingdom, with no payments exchanged by the plaintiffs and defendants and no future financial obligations.

$3.2 Billion
NUMBER OF EMPLOYEES: 7,800

Over 70 percent of cancer patients require radiation therapy as a part of their treatment. Unfortunately, in this case, that which treats can also harm, because excess radiation is poisonous to healthy tissue. This isn’t detrimental to cancer patients in developed countries such as the United States, where precise radiotherapy machines offering image-guided treatments help minimize the risk of destroying healthy tissue. But hospitals and treatment centers in developing countries often lack the necessary resources for even the most basic radiotherapy machines, let alone advanced (and quite expensive) radiotherapy systems. Ethiopia, for example, had merely a single cobalt treatment unit to support its population of over 90 million. Discontented with this meager offering, the Ethiopian government proposed the first phase of a cancer plan, which involved installation of Varian Clinac iX treatment systems across the country.

Varian happily accepted, and the order was swiftly placed for six treatment machines in Ethiopian University hospitals in Harar, Mek’ele, Jima, Hawasa, Gondar, and the capital Addis Ababa. Clinac iX systems will be a quantum leap for Ethiopian cancer care—the machines boast fast and precise treatments with image-guidance tools that greatly minimize radiation damage to healthy tissue. Each site will also receive a treatment planning system, oncology information management workstations, and two radiotherapy bunkers to facilitate future expansion. The machines stand poised to completely revamp Ethiopian cancer treatment, as well as boost Ethiopian healthcare professionals’ clinical intelligence.

“A modern linear accelerator will be so important for our center,” Dr. Mathewos Assefa Woldegeorgis of Black Lion University Hospital in Addis Ababa said when Varian announced the plan. “This machine will also help in the training of health professionals such as radiation oncologists, radiotherapists, and medical physicists.”

Varian is no stranger to delivering its advanced cancer care across the globe. That same month, Varian equipped the Turkish cities of Mersin and Ankara with two of its TrueBeam radiotherapy systems and the country’s first VitalBeam radiotherapy system. Two months later, Bolivia’s Instituto Oncologico del Oriente Boliviano was on the receiving end of a Clinac iX accelerator, as well as a two-day seminar for clinicians and radiation therapists to learn how to operate the device.

“A lack of investment in radiotherapy services in the past has severely limited access to radiotherapy treatments worldwide,” Varian’s president of Oncology Systems Americas, Chris Toth, said when Varian announced the installation. “We are proud to be working with Instituto Oncologico del Oriente Boliviano, and making this advanced cancer fighting treatment available to a wider range of patients in Bolivia.”

ANALYST INSIGHTS: The introduction of its new Halcyon platform has raised industry eyebrows as this product has the potential to continue to rapidly expand its market share in oncology. Two keys for performance for Varian this year and beyond will be (1) the acceptance and adoption of the Halcyon system; and (2) the growth of its emerging market presence.

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

Varian holds the claim to fame for developing the first medical linear accelerator. Since then, the company has developed a portfolio of technologies to treat and manage cancer, including equipment for radiotherapy, radiosurgery, brachytherapy, and proton therapy. Varian also produces the software to accompany its machines for care coordination, treatment planning, and clinical operations management. Its TrueBeam, Edge, and VitalBeam systems for radiotherapy and radiosurgery employ beam shaping, image guidance, and motion management technologies to deliver radiation doses that closely match the size, shape, and location of tumors while protecting surrounding tissues from radiation.

Varian’s Oncology Systems business, which includes the aforementioned linear accelerators and software as well as brachytherapy afterloaders and treatment simulation, has historically made up the bulk of the company’s earnings, and the tradition continued in FY 2016 (ended Sept. 30). Oncology Systems contributed 76 percent of Varian’s $3.2 billion 2016 revenue (which was a 3.8 percent rise over the previous year), expanding by $113 million from 2015.

That 5 percent revenue bump primarily resulted from increased hardware product sales stimulated by a strong product mix, accompanied by a rise in software licenses. Service revenues also showed a small climb of 4 percent from the previous year because of increased adoption of TrueBeam systems service contracts. Though sales were up in each region, the business was heavily fueled by an impressive 13 percent expansion in the APAC (Asia-Pacific) market.

Oncology Systems introduced the 360 Oncology care management platform in September 2016. It’s the first software system designed to integrate and coordinate key cancer care elements by bringing radiation, medical and surgical oncology, social services, primary care physicians, and the patient together in a single platform. The platform enables a dashboard view of clinical and operational data that can be shared in electronic medical records (EMRs), oncology information systems for both radiation and medical oncology, and other point-of-care solutions, such as PACS and lab systems, to achieve a full 360-degree view (hence the name) of patient data.

Though it makes up just 5 percent of total earnings, Varian’s “Other” business category, which includes proceeds from proton therapy systems for cancer treatment and the GTC scientific research facility, jumped 13 percent from the previous year with $163 million in revenue. This is mainly due to the continued production and installation of VPT (Varian Particle Therapy) projects in the company’s backlog. The division is expected to further expand its strength due to the October 2015 CE marking of the newest version of the ProBeam Proton Therapy System. ProBeam gives clinicians the ability to deliver a dose precisely in order to minimize exposure to healthy tissue. It touts high-speed intensity modulated proton therapy (IMPT), the most precise form of proton therapy available, enabling modulation of the dose on a spot-by-spot, layer-by-layer basis throughout the treatment area.

Varex Leaves the Nest

Varian’s former (to be explained in a moment) Imaging Components business designed, manufactured, sold, and serviced X-ray imaging components for a range of applications, including radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography (CT), computer-aided diagnostics, and industrial applications. The business has struggled over the past few years, decreasing 7 percent in revenue from 2014 to 2015, and again by 2 percent from 2015 to 2016. The loss in FY16 was attributed to falling sales from flat panel and X-ray tube products due to customer migration to lower-cost alternatives, and one customer’s decision to insource some of its flat panel products in the second half of FY15.

The flattening revenues prompted Varian to spin off its Imaging Components business into a new publicly traded company, Varex Imaging. Varex’s creation was announced in May 2016, and the spinoff was completed in January 2017.

“The spinoff will create two strong, independent companies,” Varian CEO Dow Wilson said in a release detailing the separation. “It will enable Varian to focus on expanding its position as a global cancer company with leading technology and services. It will empower the new company to grow as a global leader in components, software, and services for expanded imaging applications and markets.”

The separation is expected to maximize growth opportunities—particularly in Asia—and develop applications for its components as X-ray imaging continues to transition into digital systems. The spinoff hopes to establish the new company as a leading global supplier of components, software, and engineering services for imaging equipment manufacturers and system integrators in the diagnostics, dentistry, veterinary care, security, and industrial inspection industries.

“This business will be able to capitalize on trends in digital imaging and build a larger presence in security and industrial applications,” Wilson continued. “The new company will be able to leverage its world-renowned X-ray engineering team to work with equipment manufacturers and system integrators to develop new, next-generation imaging systems.”

Varex is predicted to achieve annual revenues of $575 million, with a workforce of 1,300 people. The new company leverages a nearly $600 million business that Varian has been growing since 1999. Sunny Sanyal, previously president of the Imaging Components business, will head Varex as its new CEO. Former Varian controller Clarence Verhoef will assume the role of chief financial officer.

“We are very pleased that we were able to complete this successful separation and create two strong independent companies,” Wilson said in the release proclaiming Varex’s successful split. “Varian is now focused exclusively on expanding its position as the leader in systems and software for the treatment of cancer. As a cancer-fighting company we are increasing our efforts to make the treatment of cancer more effective, affordable, and accessible for patients around the world.”

$3 Billion
NO. OF EMPLOYEES: 6,200

Varian Medical Systems Inc. made it into the Top 30 (at number 30) in MPO’s June 2012 issue, for its $2.6 billion dollar FY11. Unfortunately, the radiation oncology technology company has been absent for two years in a row—but at $3 billion in revenues, FY14 has brought the company back into the Top 30 fold.

Behind the company’s successful year are two secret weapons: Its particle therapy business and the Ginzton Technology Center (GTC). Headquartered in Mountain View, California, with a staff of about 45, the GTC serves as Varian Medical Systems’ central research and development organization, incubating new technologies, supporting product development for the company’s business units, and conducting government or industry-sponsored research projects. Its mandate is to investigate the development of new, disruptive breakout technologies that fit within Varian’s other existing businesses (oncology and imaging components).

Varian’s particle therapy business makes targeted proton beam technology that treats cancerous cells. Together, particle therapy and the GTC are grouped under Varian’s “other” business (oncology and imaging components being the company’s main two business units), but they did very well for Varian in the last quarter of 2014, bringing in $22 million, 30 percent more than the businesses did in the same quarter in 2013.

However, at $45 million, the full fiscal year revenue for these two businesses was actually down 6 percent from the whole-year revenue in 2013. But gross orders for the company’s proton therapy were up in 2014 (year ended Sept. 30), because a grand total of zero orders were received in 2013. Therefore, the proton therapy business brought a gross of $120 million in FY 2014, which bodes well for the future of the business once operating expenses settle down.

“Fiscal 2014 was a year of investment aimed to stimulate long-term, top-line growth for the company and we have made good progress,” explained President and CEO Dow R. Wilson. “We’re focusing now on restoring our more normal operating expense levels to maintain margins and improve earnings growth. In the first quarter of fiscal 2015, we expect to take a restructuring charge of an estimated $13 million or $0.09 per diluted share to realign and reduce our staff levels through programs, including an enhanced retirement plan.”

Wilson also said that Varian is “aiming to build a profitable $300 million annual proton business within the next few years.”

Early in 2014, Scripps Health, an internationally regarded healthcare system based in San Diego, Calif., established the Scripps Proton Center, the first ever fully equipped Varian proton center. This marks the first of many expected such sites, with upcoming centers planned in Cincinnati, Ohio; Russia; Saudi Arabia and Taiwan.

The company, however, is being realistic about what lays in store for proton therapy. Potential customers are government-sponsored hospitals and research institutions and research universities, which typically purchase products through public tenders, as well as private hospitals, clinics and private developers—and until now, Varian has been selling its proton therapy systems through direct sales specialist representatives who collaborate with the company’s oncology systems sales group. First, the company predicts, growth in this developing market will occur mainly in the major metropolitan areas in the United States and abroad, driven by institutions that wish to expand their clinical offerings and increase their profile in their respective communities.

Varian is investing “substantial resources” to build this new business. Proton therapy facilities, such as the one opened by Scripps, are large-scale construction projects that are time consuming and involve significant customer investment and often complex project financing. Consequently, this business is vulnerable to general economic and market conditions, as well as the inescapable problem of reimbursement rates. Customer decision-making cycles tend to be very long, company officials note, and orders generally involve many contingencies. Tight credit markets constrain the ability of proton therapy projects to obtain financing, as well.

During the conference call for FY14 financial results, a number of analysts challenged the executive team on its outlook for the growth of proton therapy in 2015, citing the shuttering of a (non-Varian) proton therapy center in Indiana. Wilson noted, “It was one of first proton centers in the United States. It was older technology, generations behind. It’s in a tough location. It’s … one hour plus outside Indianapolis, not in a big location, has a small catchment area. They did good work, primarily research. And if you saw the report, it was very costly for them to modernize in that location. So we feel very good about the partners that we’re dealing with. Clearly, the cost of protons is expensive, and we have to work on that together to bring it down. But the clinical advantages of protons look very, very positive.”

Not to fear, however—so far, FY15 has seen Varian selected to equip proton therapy centers in Denmark, England and the Netherlands, and the company also contributed to financing the new Maryland Proton Therapy Center. The center committed to an $87 million order in 2015, as well as a 10-year service agreement valued at approximately $65 million.

Speaking of growth, Varian put its money where its mouth is in FY2014. Sending a clear message that it’s serious about long-term growth strategies, it acquired outside technology, assets from two companies, and expanded its Utah operations in a major way. In January 2014, Varian signed an agreement with the United Kingdom’s National Health Service (NHS) to buy an NHS-developed cancer care planning tool called the Radiation oncology Planning Online Resource Tool (R-PORT). The intent was to offer R-PORT to oncology departments globally. Then in April, Varian completed the acquisition of certain assets of Velocity Medical Solutions LLC, an Atlanta, Ga.-based developer of specialized software for cancer clinics. Then in August, Varian acquired certain assets of Gig Harbor, Wash.-based Transpire Inc., including the Acuros dose calculation software that has been integrated into Varian’s Brachyvision and Eclipse treatment planning software products.

The Utah expansion was announced in January, and the project broke ground in August just under the line for the end of the fiscal year in September. The company’s existing Salt Lake City operation is predicted to expand to create 1,000 more full time jobs over the next 20 years.

The company received an impressive total of three new 510(k) clearances from the U.S. Food and Drug Administration (FDA) in FY14. While it did not receive major regulatory green lights from foreign markets, the company did establish a presence with either proton therapy or oncology treatment equipment in countries including Scotland, Taiwan and India. The first FDA clearance was received right at the beginning of the fiscal year in October 2013. Rapidplan, a radiotherapy treatment planning tool designed to enhance quality, consistency, and efficiency in radiotherapy treatment planning, was cleared to kick off the year. According to the company, the tool provides clinics with knowledge-based models that generate high-quality personalized treatment plans for their patients. Then in January 2014, Varian received clearance for the updated version of its Probeam proton therapy system. The system is designed to give clinicians options for delivering doses precisely in order to minimize the dose to healthy tissue in the course of delivering proton therapy treatments for cancer. In July, FDA cleared Varian’s Calypso soft tissue Beacon transponder, designed to aid the precision of radiotherapy and radiosurgery treatments for cancer. The transponder is approximately the size of a grain of rice and can be implanted into soft tissue anywhere in the body except the lungs. The Calypso GPS for the Body system can then continuously track and monitor the position of the transponders, so the high energy treatment beams precisely can be aimed to minimize exposure of surrounding healthy tissues. An earlier version of the Calypso Beacon transponder was cleared for use specifically in the prostate and prostatic bed; the new clearance made the system applicable for many other types of cancer.

There were two personnel movements of note during FY14. In February, Robert H. Kluge retired from his role as senior vice president and president of the company’s imaging components businesses. Former CEO of ER documentation and coding software and services company T-System Inc., Sunny Sanyal, succeeded Kluge. Varian’s imaging components businesses are comprised of the X-ray products and security and inspection products businesses. Also in February, Board Chairman Richard M. Levy retired from his position. Levy had served as chairman for 12 years, and also was CEO of Varian from 1999-2006. He was succeeded by R. Andrew Eckert, who was, at the time, CEO of CRC Health Corporation.

Fiscal year 2014 also was the year in which old ghosts came back to haunt the company—in April, Varian settled a years-long patent lawsuit brought against them by the University of Pittsburgh, Pa. The result was a $35 million hit in the company’s second and third quarters. The University initiated a patent infringement lawsuit against Varian in 2007 regarding the company’s Real-time Position Management technology, which is used to account for breathing motion during delivery of radiation therapy. In 2012, the United States District Court for the Western District of Pennsylvania ruled against Varian, ordering payment of approximately $102 million. Varian challenged that ruling in the United States Court of Appeals for the Federal Circuit, and ultimately was able to reach a settlement agreement with the school.

30. Varian Medical Systems

$2.4 Billion

KEY EXECUTIVES:

Timothy E. Guertin, President & CEO

Dow R. Wilson, Corporate Exec. VP & President,Oncology Systems

Elisha W. Finney, Corporate Sr. VP, Finance & ChiefFinancial Officer

Robert H. Kluge, Corporate Sr. VP & President, X-ray Products

Lester Boeh, VP, Emerging Businesses

NO. OF EMPLOYEES: 5,300

GLOBAL HEADQUARTERS: Palo Alto, Calif.

Karen Fry hit the reset button on her life last year. Having undergone successful radiosurgery for metastatic breast cancer, Fry, 61, retired from her job and moved with her husband to bucolic Paradise, Calif., a town of about 26,200 residents nestled in the northwest foothills of the Sierra Nevada Mountains.“I’m still doing fine,” she declared in an online account of her cancer battle.

Fry wasn’t always doing so fine. In the fall of 2008, chronic back pain led to the discovery of a recurrence of the breast cancer she had beaten in the early 1990s. Doctors used conventional radiotherapy to defeat the disease, but the strategy wound up treating only part of one tumor. “I needed something else to finish the job,” she said.

That something else was a technology known as radiosurgery, which allows doctors to attack cancerous tumors by using high-energy radiation focused directly on the tumor and delivered from many different angles. Such an approach enables physicians to target each part of a tumor to deliver precisely the right amount of medication. Fry’s doctors used a linear accelerator (also known as a linac) from Varian Medical Systems Inc. to deliver the high-energy targeted radiation that eventually defeated her internal assassin.

“Stories like Karen’s inspire all of us at Varian to give our best in our mission to harness the power of focused energy to save lives and prevent harm,” President and CEO Timothy E. Guertin wrote in a letter to stockholders in the company’s 2010 annual report. “I have given our company a goal to help save 100,000 more lives like Karen’s each year by providing customers around the world with new technology, products and services for controlling cancer, improving X-ray imaging, and securing ports and borders. Varian’s accomplishments in fiscal 2010 exemplify this calling.”

And there were many contributors to that exemplification, starting with the New York, N.Y., unveiling of the company’s TrueBeam linear accelerator, a $2.7 million machine that can target tumors with a less than 1-millimeter precision. The TrueBeam achieves such accuracy by checking 100,000 data points every 10 milliseconds; as a patient breathes, causing tiny movements, the machine accounts for those movements and selectively delivers radiation when the tumor comes into range. Such targeted radiation doses reduce treatment time anywhere from 50 percent to 75 percent and makes stubborn tumors like Fry’s—which were within a few millimeters of her spinal cord, bowel and other organs—now more vulnerable to modern science.

That kind of vulnerability may help explain the TrueBeam’s popularity with customers. By the time the company’s 2010 fiscal year ended on Oct. 1 (barely six months after executives unveiled the machine in Manhattan), hospitals and clinics in North America, Europe, and Asia had placed more than 125 orders for the system. In addition, Varian had begun or completed more than 30 TrueBeam installations and clinicians had performed more than 1,000 treatments with the technology.

In tandem with the TrueBeam launch, Varian introduced its Gated RapidArc product in fiscal 2010, a next-generation volumetric modulated arc therapy that enables clinicians to coordinate high-speed oncology treatments with patients’ respiratory cycles. The product, which improves the accuracy of the company’s TrueBeam, Trilogy and other Clinac iX linear accelerators, contributed to strong RapidArc net order growth for Varian’s Oncology Systems segment. By the end of fiscal 2010, the company had received more than 1,200 orders for its RapidArc products and had installed more than 600 systems.

Strong demand for Varian’s linear accelerator products boosted the annual unit order volume to record levels in fiscal 2010. Overall orders in the company’s Oncology Systems business grew 10 percent with double-digit growth in both Europe and Asia. North America, which experienced a rocky start to FY2010 with a double-digit order decline in the first half, recovered in the second half of the year and finished with 4 percent order growth. Orders mushroomed 187 percent in India, 58 percent in China and 17 percent in Brazil.

Overall Oncology systems sales grew 3.6 percent in fiscal 2010 to $1.8 billion, while net orders totaled $2 billion and operating earnings slid 4.1 percent to $462 million, according to Varian’s latest annual report.

FY2010 revenue grew the most in Varian’s X-ray products segment, which posted $419 million in net orders and a backlog of $137 million. Annual revenue jumped 22 percent to a record $403 million, while operating earnings climbed 22 percent to $100 million. Driving growth in this segment was the company’s PaxScan line of flat-panel detectors for filmless X-ray imaging, which increasingly are being used to replace or retrofit older film-based and computed radiographic systems, executives said.
A broader adoption of dynamic panels for cone-beam computed tomography scanning also contributed to the popularity of Varian’s PaxScan products.

The company’s “Other Businesses” category includes its Security and Inspection products group, the Varian Particle Therapy business, and the Ginzton Technology Center, which conducts research and development projects that support all other business units. This category posted an 8.3 percent increase in revenue to $92 million and an operating earnings loss of $30 million, but its capital expenditures more than doubled to $7 million (after slipping more than five-fold in fiscal 2009).

Overall company sales rose 6.5 percent in fiscal 2010 to $2.4 billion and net orders ballooned 10 percent to $2.6 billion, excluding a $62 million proton therapy system order that was booked in the fourth quarter of fiscal 2009 and then cancelled in the first quarter of FY2010. The Palo Alto, Calif.-based firm posted a 6.8 percent increase in gross margin to $1 billion, a 13 percent jump in operating earnings to $534.2 million and a 6.3 percent drop in working capital to $777.8 million. Additionally, net earnings totaled $360.4 million, a 13 percent increase compared with the $319 million the company posted in fiscal 2009 (year ended Oct. 2, 2009), and net earnings per diluted share improved 11.8 percent to $2.96.

$2.2 Billion
NO. OF EMPLOYEES: 5,100

For the last several years, the growth strategy at Varian Medical Systems Inc. has revolved around three basic questions. The first is essential to any growth plan—how to get more customers interested in purchasing the company’s products.

The other questions seek input on making Varian’s products more efficient and enjoyable to use, and approaches to entice non-customers to buy its products. Finding the answer to those questions has helped Varian Medical executives grow the business from $1.6 billion in fiscal 2006 to $2.2 billion in fiscal 2009 (year ended Oct. 2).

Remarkably, Varian’s question-and-answer growth strategy even fostered expansion during one of the most severe recessions on record. The company posted a 3 percent gain in net orders to $2.4 billion, a 13 percent increase in operating earnings to $474 million and a 35 percent jump in working capital to $830 million. Additionally, net earnings totaled $319 million, a 12 percent increase compared with the $279.5 million the company posted in fiscal 2008 (year ended Sept. 26, 2008), and net earnings per diluted share improved 15 percent to $2.65.

By the end of fiscal 2009, the company had grown its net order backlog by 9 percent to $2.1 billion, and built up its cash position to a solid $554 million. Plus, stockholders’ equity skyrocketed 28 percent to $1.3 billion. “We entered fiscal year 2010 in a very strong financial position,” President and CEO Timothy E. Guertin said in a letter within the firm’s 2009 annual report.

That position was enhanced by a 2 percent workforce reduction and significant decreases in capital expenditures across the company’s three business segments. Revenue increases in two of the segments also gave the company the financial vitality it needed to sustain growth through fiscal 2010.

Revenue grew the most in Varian’s X-ray products segment, which posted $339 million in net orders and a backlog of $121 million. Revenue climbed 9 percent to $331 million, while operating earnings jumped 12.3 percent to $82 million. The segment overcame a significant drop in orders during the second and third fiscal quarters, when X-ray equipment manufacturers reduced inventories of X-ray tubes and flat-panel detectors due to the recession. Executives said the firm’s flat-panel products represented more than 40 percent of the segment’s net orders for the fiscal year.

Other growth drivers of X-ray products revenue in fiscal 2009 included the On-Board Imager image-guidance system for targeted radiotherapy. In October 2008, the company marked the 1,000th installation of the On-Board Imager at Kantonsspital in Lucerne, Switzerland.

The firm also introduced the PaxScan 3030+, a digital imager that features speeds up to 30 frames per second. Executives claim the PaxScan allows doctors to monitor interventional procedures, including the placement of catheters within blood vessels, in real time.

Oncology systems sales grew 8 percent to $1.8 billion, while net orders totaled $1.9 billion and operating earnings shot up 17 percent to $482 million. Though it was not apparent in the segment’s overall financial performance, executives said the Oncology division was adversely affected by capital equipment budget reductions at North American hospitals, uncertainty over healthcare reform in the United States, and a proposal from the U.S. government to cut reimbursement rates at freestanding clinics by up to 40 percent.

“The troubles in North America during fiscal 2009 overshadowed many successes for our Oncology Systems business,” Guertin said. “Annual orders in the international market rose by 11 percent, or 16 percent on a constant currency basis. Europe, Asia and Latin America all contributed to this growth, demonstrating there is a demand for cancer-fighting products in underequipped regions.”

Growth drivers of Oncology systems products revenue in fiscal 2009 included the Novalis Tx radiosurgery platform, the RapidArc two-minute radiation therapy treatment system (more than 270 were installed by fiscal year’s end) and the Unique low-energy accelerator during fiscal 2009, a device that can deliver fast, image-guided RapidArc treatments. The company also received 510(k) clearance from the U.S. Food and Drug Administration for its Acuros radiotherapy treatment system, which enables clinicians to rapidly calculate patient doses of radiation at an extremely high rate of speed.

The acquisition last summer of Houston, Texas-based IKOEmed and IKOEtech, privately-owned suppliers of software used in the planning of radiotherapy and radiosurgery treatments, certainly helped the company add to its bottom line in fiscal 2009. The company spent $2 million to acquire the IKOE assets.

Varian’s “Other Businesses” category includes the firm’s Security and Inspection products group, the Varian Particle Therapy business, and the Ginzton Technology Center, which conducts research and development projects that support all the company’s business units. The Other Business category posted an 8.6 percent decline in revenue to $85 million, an operating earnings loss of $19 million, and a more than five-fold drop in capital expenditures to $3 million. Net orders, however, rose 60 percent to $151 million and its backlog nearly doubled to $143 million.