Credit: Shutterstock photoVarian Medical Systems Inc.VAR recently announced the completion of financing for the Maryland Proton Therapy Center (MPTC), which was being carried out by Deutsche Bank AG, Varian and several private investors.
Varian has committed to loan up to $35 million to the MPTC project through its subsidiary in Switzerland. Varian's commitment is in the form of a subordinated loan that is due, with accrued interest, in three annual payments from 2020 to 2022.
The MPTC is being developed through collaboration between the University of Maryland Radiation Oncology Associates, University of Maryland Medical Center and Advanced Particle Therapy of Nevada. Located in Baltimore, the facility aims to bring proton therapy, one of the most advanced forms of cancer treatment available today, to Baltimore and the Mid-Atlantic region.
The MPTC will be equipped with Varian's ProBeam system. Notably, Varian expects to book an equipment order worth approximately $87 million in the third quarter of fiscal 2015, and will record a significant portion of the equipment revenue during the same period. We believe that this will significantly boost the company's top line going forward.
Notably, the company expects to add about $80 million of revenue and approximately 22 cents of earnings per share (EPS) to its previous guidance for fiscal 2015, with the vast majority impacting the third quarter. Per the company's earlier fiscal 2015 guidance, revenues are projected to increase approximately 5% year over year at constant currency while EPS is expected in the band of $4.02-$4.14.
Varian has also signed a 10-year service agreement valued at approximately $65 million. Service revenue will be recorded over the life of the contract and has not been added to the company's backlog.
Our Take
We note that Varian's ProBeam proton therapy system is being increasingly employed at various proton therapy centers for the treatment of cancer. The ProBeam technology is currently being used to treat patients at the Scripps Proton Therapy Center in San Diego, the Rinecker Proton Therapy Center in Munich, and the Paul Scherrer Institute in Switzerland.
The company has also recently signed a contract with two new national proton therapy centers in England and a new national proton therapy center in Aarhus, Denmark. We believe that Varian's promising proton therapy developments hold significant long-term potential for the company.
Though Proton Therapy segment is still small, given the relative experimental stage of the business, we believe that the projections for the future look bright. The growing private markets in China and Brazil are expected to present strong growth opportunity to Varian in 2015. However, the recent foreign exchange volatility is expected to be a major concern in the near term.
Stocks to Consider
Currently, Varian carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the medical instruments industry include LDR Holding Corp LDRH , Cepheid CPHD and Globus Medical GMED . While LDR Holding Corp sports a Zacks Rank #1 (Strong Buy), both Cepheid and Globus Medical carry a Zacks Rank #2 (Buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
