(VAR) Varian Medical Systems Wins Shonin in Japan

Leading integrated radiotherapy systems maker Varian Medical Systems (VAR) recently disclosed that it has won Shonin approval from the Ministry of Health, Labor and Welfare (“MHLW”) in Japan to sell its TrueBeam system for image-guided radiotherapy as well as radiosurgery.

TrueBeam is Varian’s most sophisticated cancer treatment system. It is especially suitable for therapy of lung and liver cancer, which are among the five most common cancers in Japan. Varian has designed its TrueBeam system to handle tumors with precision and speed. This includes tumors that tend to move, during therapy, as the patient breathes.

This cutting edge technology integrates a series of technical improvements, which provide help during treatment, such as positioning the patient and managing his/her motion. The know-how has applications in all modes of sophisticated external-beam radiotherapy (including intensity modulated radiotherapy and RapidArc radiotherapy).

TrueBeam has the capability to deliver doses at a rate that is about twice the maximum capability of older systems. Consequently, patients stand to benefit from shorter treatment times and clinics can, in turn, increase patient throughput. Clinicians too gain from the “intelligent” systems of the TrueBeam accompanied by a manifold drop in the number of steps that technicians have to routinely perform.

Varian has received orders for over 220 TrueBeam systems till date and it has installed (or in process of placing) 65 around the world. The company also provides the Clinac and Trilogy know-how in Japan. About 360 Varian machines run at clinics across Japan.

Varian’s second-quarter fiscal 2011 (ended March) earnings per share beat the Zacks Consensus Estimate by a penny. Revenues shot up 11% year over year to $648 million, also beating the Zacks Consensus Estimate.

Company-wide order backlog rose 11% to $2.2 billion at the end of the reported quarter. Growth was led by an increase in net orders for TrueBeam system, Oncology services, X-Ray tubes and panels as well as security systems.

Varian is a leading manufacturer of integrated radiotherapy systems for treating cancer and a premier supplier of X-ray tubes for diagnostic imaging applications. The company operates in a technology-driven environment where success depends on the use of new technology, product development and upgrades. In the radiation oncology market, Varian competes with Accuray (ARAY).

Varian is poised to increase its market share in radiation oncology. It is currently enjoying a healthy demand for its coveted RapidArc and TrueBeam radiotherapy technology, which is meaningfully contributing to its oncology net order growth.

However, Varian aggressively competes with well-funded competitors for a limited pool of sales volume. Further, uncertainties stemming from health care reform and a still weak hospital capital spending environment across many developed countries, especially in Europe, provide headwinds.

We currently have a Neutral long-term rating for the stock, supported by a short-term Zacks #3 Rank (Hold).

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