Varian Medical Systems, Inc. (NYSE:VAR)

CAPS Rating: 4 out of 5

The Company designs, manufactures, sells and services advanced equipment and software products for treating cancer with radiation.


Player Avatar PauvrePapillon (99.82) Submitted: 10/19/2007 1:02:46 PM : Underperform Start Price: $42.46 VAR Score: -44.45

Varian may have current market share but their technology has been rendered obsolete by the commercial introduction of Accuray's CyberKnife. This is why Varian's sales have flattened out. Even Varian's hack analyst Amit Hazan admits as much in his latest excuse as to why VAR has not performed as he had predicted.

"'Competitor innovation and subsequent inroads have clearly brought on share losses during the past year, and perhaps caught Varian a little off guard,' Hazan said."

Even Varian’s own press releases reveal an awareness of the problem. First they tout the SRS capabilities of their existing product line. Then they announce a joint venture with BrainLab to develop an SRS machine. If they already have an SRS capable product, why do they need to partner with a competitor to create one? Read between the lines. Varian is in trouble.

Until recently, CyberKnife has been a self referral-driven phenomenon. Patients see a TV news report or documentary or, doing their own research, find out about CyberKnife on the Internet and start to ask the right questions. The CyberKnife Society and CyberKnife Coalition have taken the lead in helping patients gain access to CyberKnife SRS with Accuray reporting that 95 percent of all cases are achieving reimbursement.

The bottom line for hospitals is that they must adapt or lose the business. Since, the reimbursement rate per fraction for CyberKnife SRS is up to nine times greater than conventional radiotherapy, it’s not a tough sell. As Varian’s existing installed base reaches the point at which this equipment would normally be replaced, hospitals are, instead, opting to upgrade to CyberKnife.

This market is moving towards CyberKnife SRS and way from conventional radiotherapy because CyberKnife gets better results for the patient and is more profitable for the provider. This is not good news for Varian shareholders. If Varian can’t make up for their technology deficit in the radiation oncology space with sales in other markets, their stock price has to come down.

Report this Post 16 Replies
Member Avatar PauvrePapillon (99.82) Submitted: 10/19/2007 3:19:28 PM
Recs: 0

Over the past 12 months, Varian’s market cap has shed 21 percent of its value even though the S&P is up over 12. 6 percent for the period and management has spent over $260 million in share buybacks to help prop up the share price.

Varian’s cash reserves are now down to $192 million ($80 million less than a year ago). How much longer are they going to continue to prop up the share price and what happens when they stop?

Member Avatar PauvrePapillon (99.82) Submitted: 10/24/2007 11:02:59 AM
Recs: 0

Today’s announcement of a CyberKnife purchase by the U. S. Government for the Michael E. DeBakey VA Medical Center in Houston, Texas indicates that the powers that be have begun to recognize that CyberKnife SRS is not only an excellent treatment option for patients but that it is also a more cost effective treatment option for insurers. This is where it really starts to get interesting.

In the battle for radiotherapy supremacy, Varian and Tomo have inertia and lowest cost of entry, respectively, on their sides. Additionally, Varian is a large institution with numerous allies ready, willing and able to spread misinformation concerning the capabilities of its machines versus CyberKnife. Doctors and hospitals may, for various reasons, buy into either paradigm even though they know CyberKnife is the better alternative for patients.

However, when the economic interests of those entities which actually pay for the treatments favor CyberKnife SRS, we now have an alignment of incentives pushing for the rapid deployment of this technology throughout healthcare systems around the world. The VA purchase of a CyberKnife is a significant milestone along this path.

This is great news for Accuray shareholders as well as the patient community, not such a good day for Varian and Tomo.

Member Avatar PauvrePapillon (99.82) Submitted: 10/29/2007 12:03:02 PM
Recs: 0

"Jefco's physician experts believe that the potential market for SRS is vast. Dr. Brenner stated that every radiation oncology department or center would eventually need to purchase an SRS system in order to deliver the full compliment of radiation treatment options to their patients."

"Both Jefco's physician experts believe that the CyberKnife is technologically superior to all of the competing radiation therapy platforms, including Varian's (VAR) Trilogy, BrainLab's Novalis, Elekta's Synergy and Axesse, and TomoTherapy's (TTPY) Hi-Art Systems."

The medical radiation market is moving towards stereotactic radiosurgery (SRS) and Accuray has the best SRS technology. Long-term, that means an erosion of market share for industry leader Varian as patients demand the best and the market responds to that demand.

Keep in mind that installations resulting in recognized revenues in current quarters are coming off sales closed 12 to 18 months ago. It will take some time before Accuray’s technological superiority shows up in both its and Varian’s quarterly results.

Varian can sugar coat their situation all they want. The bottom line is they are marketing an inferior product. Sooner or later, that’s going to show up in their operating results.

Member Avatar PauvrePapillon (99.82) Submitted: 10/30/2007 6:36:48 AM
Recs: 0

I’ve been getting reports from ASTRO and today visited the convention floor as well as Accuray’s Investor Conference in person.

Here are a few impressions.

Investors may be confused but the medical community is not buying into Tomo and Varian’s bogus SRS claims. Everybody understands that in order to achieve dosage levels sufficient to ablate tumors without extensive collateral damage, you need to fire your beams from many different angles thus traversing healthy tissue only once or at worst just a few times. Unless you have a robotically-controlled CyberKnife, you can’t do it. The gantry-mounted linear accelerators just don’t have the flexibility to be able to fire from all these angles because you can’t dangle their massively heavy linac from a robotic arm. End of story.

Additionally, reaction to Tomo and Varian’s recently announced radiotherapy “advances” is, at best, underwhelming.

Check out Tomo’s press release:

“TomoTherapy Incorporated announced today that it has partnered with Medical Intelligence, an Elekta company, to enhance the TomoTherapy HiArt treatment system’s stereotactic radiosurgery capabilities. A head frame fixation and repositioning device, is on display in the TomoTherapy booth at the Annual Meeting of the American Society of Therapeutic Radiology and Oncology (ASTRO), which opened Sunday and runs through Wednesday, October 31, 2007. This is a works-in-progress prototype of the first product to be developed through the partnership.”

They are still working with head frames? And bragging about it? This stuff is junk. Not even yesterday's mashed potates. CyberKnife rendered all head frame applications obsolete years ago. Tomo’s presentation today of this head frame business as a technological “advance” was nothing short of pathetic.

Immediately across the street from The Staples Center, Varian has a huge billboard touting the introduction of its RapidArc technology which, essentially, is an obsolete machine that’s a little faster. In small print at the bottom of the billboard they say, “Not approved for sale in the United States”. RapidArc is an “advance” which does nothing to increase the effectiveness of its machine, does nothing to reduce radiation damage to healthy tissue, does nothing to increase the comfort of the patient and isn’t even FDA approved. Interesting that both companies feel compelled to try to develop a PR program around such an obviously weak product.

On the other end of the spectrum, we have Accuray announcing five substantial and exciting new products.

1.   Sequential Optimization enables physicians to conform radiation patterns to various treatment paradigms they may already be using. For example, these algorithms allow for treatment patterns that disburse the radiation evenly over the entire tumor or with concentrations on various areas or any combination thereof. This is important because there is something of a debate as to which approach is best. CyberKnife now can be programmed to perform according to either paradigm. This is so far beyond the capabilities of any other radiation platform it's ridiculous. Sequential Optimization alone is far more significant than everything Tomo or Varian is even talking about doing.

2.   Accuray’s new Iris Variable Aperture Collimator, developed with one of their clinical partners in Germany, allows the robot to quickly change beam diameters without changing collimator heads. This dramatically reduces treatment times while enabling the physician to develop and utilize treatment plans that employ a variety of beam sizes as well as firing locations in order to gain the optimum radiation saturation of the tumor with minimal collateral damage.

3.   RoboCouch Patient Positioning is a patient comfort enhancement that allows the patient to enter the treatment area by sitting on the RoboCouch in a natural manner after which the couch rotates and elevates the patient into position. Contrast this with climbing onto a hard, flat, cold treatment table.

4.   800 MU/minute Linac is an enhancement to their miniature x-band linear accelerator that allows for a 33 percent increase in dose rate. Again, this saves time and enables more treatment programs to be completed in a single session.

5.   Optimized Path Traversal is similar to Varian’s RapidArc in that it reduces treatment times. The principal difference is that OPT is enhancing an SRS treatment and RapidArc is not. A secondary difference is that RapidArc is not FDA approved and is, therefore, not available for sale in the U.S.

Accuray’s new suite of products effectively cut treatment times for lung and prostate cancer in half and all are now incorporated into all new CyberKnife Systems as well as being available to existing customers under their Diamond Level service contracts which Accuray reports over 90 percent of all U.S. customers are buying at a current cost of $460,000 per year. It is the availability of upgrades that has enabled Accuray to maintain, and actually increase, the list price of their machine that now stands at $4.1 million.

As excited as both existing customers and those in the pipeline are about these five new products, Accuray actually managed to upstage their own product launch with their announcement concerning the clinical trials about to get underway comparing CyberKnife with conventional surgery for early-stage lung cancer.

Here’s why this trial is getting such buzz at the ASTRO convention.

The principal investigator for this study is Dr. Jack Roth, professor and Bud Johnson Clinical Distinguished Chair, Department of Thoracic & Cardiovascular Surgery at The University of Texas M. D. Anderson Cancer Center in Houston. Dr. Roth is generally regarded as one of the best, if not the best, lung resection surgeons in the world. He is coordinating this study because he believes and fully expects CyberKnife to perform as well as open surgery for these early-stage cases.

"The results achieved with radiosurgery appear to be comparable to those achieved with traditional surgery for early stage lung cancer patients.”

Essentially, folks, he’s trying to put himself out of business, at least as far as lung resections go for early state cancer patients. Why would he do that if he’s not already convinced that CyberKnife is the better option? Kudos to Dr. Roth for having the integrity to put his patients’ interests above all other considerations.

“The results of this study may change the way lung cancer patients are treated.”

An SRS study initiated by a thoracic surgeon?

This was big news both in the ASTRO convention hall and at the Accuray Investor Conference that was standing room only. At one point, I counted 60-some people but a few more came in later and I lost count.

I did notice an Amit Hazan badge at the credentials table and inquired about the Hazan access situation. Here’s the skinny. He was not banned from the previous quarterly analyst meeting. In fact, since there was some confusion about the location with Hazan missing the meeting, Accuray CFO Robert McNamerra contacted Hazan and offered to meet with him personally. Hazan declined.

Hazan also declined to attend today’s meeting but, interestingly enough, another representative from CIBC did attend and, to at least one other attendee, introduced himself as “Hazan’s boss”. I’m still trying to ascertain whether this was a literal description or a comment in jest. Either way, the vibe was more than a bit weird. I realize that this is highly speculative but, nevertheless, I am going out on a limb here and predicting that Hazan is out at CIBC at least as far as Accuray is concerned… maybe even farther.

Accuray’s presentation ran over two hours long and included segments by all five principal officers. Most everybody stayed for the whole presentation taking notes and asking what appeared to me to be very positive questions.

The representative from Merrill Lynch seemed to be particularly upbeat in the post presentation Q&A. I don’t believe ML even covers ARAY so either they are looking to initiate coverage, they are looking to invest or they are fishing for an M&A deal.

There are also a number of other clinical studies being presented at ASTRO that attest to the safety and effectiveness of CyberKnife SRS.

These include a study by Dr. Eisen at Georgetown University concerning metastatic intracranial lesions; a study by Dr. Soltys at Stanford University concerning pancreatic cancer; a study by Dr. Teller at the San Diego CyberKnife Center concerning prostate cancer; a study by Drs. Berger and Collins of Baylor and Georgetown concerning lung cancer; a study by Dr. Gibbs at Stanford concerning benign spinal tumors; and a study by Dr. Kresl of St. Joseph’s Hospital concerning Kidney tumors.

Other highlights of the meeting included the review of a proposal in progress (not yet approved) to increase the Medicare reimbursement schedule for SRS and a review of the patent situation which indicates that CyberKnife is now protected by 16 issued and 71 pending U.S. patents and 21 issued and 53 pending international patents.

This isn’t new but here are a few numbers worth repeating.

2005 Reoccurring Service Contract Revenue $3,045,000
2006 Reoccurring Service Contract Revenue $4,847,000
2007 Reoccurring Service Contract Revenue $16,861,000

2004 Total Revenue $20 million
2005 Total Revenue $22 million
2006 Total Revenue $53 million
2007 Total Revenue $140 million

I did speak with CEO Euan Thomson about why I believe Wall Street does not yet get Accuray. My pitch to Dr. Thomson was that what is needed is an animation that shows the treatment patterns achievable with CyberKnife versus those achievable with Trilogy and Tomo. Once you see the geometric limitations of gantry-based linac systems in three dimensions, you can see quite obviously why CyberKnife is the far superior technology.

The medical community understands the measurable results that these various treatment plans are able to achieve and thus you can talk

Member Avatar PauvrePapillon (99.82) Submitted: 10/30/2007 12:27:31 PM
Recs: 0

The medical community understands the measurable results that these various treatment plans are able to achieve and thus you can talk about dose symmetry and drop off and tumor conformity and dose intensity and local control and all the rest of it and they get it. The financial community just sees it all as a bunch of conflicting claims. They expect everybody to claim that their system is best.

If you can demonstrate, with a three-dimensional animation, why the six-degrees of freedom achievable only with the CyberKnife is necessary in order to create the optimum treatment pattern, Wall Street will begin to realize that CyberKnife really is something completely new and unique.

Absent that demonstration, they are going to be cautious as to valuation and simply wait for the operating results before getting too excited.

We will have to see what they do about taking on Varian and Tomo’s bogus SRS claims with an animation that shows the difference between gantry-mounted linacs and CyberKnife SRS but at least they did express interest in the concept.

Perhaps even more important, they did seem to be a bit more open today about discussing their competitors’ limitations. I guess the corporate culture of this industry is to allow your competitors to make whatever claims they want, truth be damned. If so, that custom is currently working to Varian and Tomo’s advantage and to Accuray’s disadvantage.

Maybe we will soon see Accuray take the gloves off or at least post up an animation that sets the record straight and let’s the chips fall where they may. I’d love to see Dr. Thomson narrate a comparative animation with the SRS equivalent of one of Boone Pickens’ come-to-Jesus talks and just lay them away. It would certainly be to Accuray’s advantage to do so as Varian and Tomo are not apt to do them any favors anyway.

Member Avatar PauvrePapillon (99.82) Submitted: 11/29/2007 9:55:12 AM
Recs: 0

Accuray Incorporated Named as Technology Pioneer 2008 by the World Economic Forum

Isn't this exactly what I have been saying all along?

Member Avatar stillwater9999 (< 20) Submitted: 12/1/2007 10:07:30 AM
Recs: 0

Varian sells an array of products. One product like CyberKnife will not hold back all their businesses. You are losing on this pick.sw

Member Avatar PauvrePapillon (99.82) Submitted: 1/3/2008 11:51:04 PM
Recs: 0

Note Varian’s Wednesday press release concerning FDA approval for RapidArc. See anything out of the ordinary there? Like what happened to their SRS claims?

Ever since the Accuray IPO, Varian has been touting their machines as SRS capable. Now comes FDA clearance for RapicArc and suddenly Varian goes silent on SRS? Huh? Lots of hype about what a great breakthrough RapicArc represents in “radiotherapy” but no mention of SRS whatsoever. Hmmm. What prompts this 180-degree change in tactics at Varian?

Did you notice that even on a down day, ARAY took off Wednesday at about midday and continued up on Thursday despite the absence of any substantial news other than the Varian release? Add to that the fact that Varian lost about two dollars over the same time period and is now actually down from where it was at the day before the FDA action was announced. Are we seeing some information leakage here? Has anybody seen a copy of the actual 510(k) clearance document from the FDA? Wouldn’t it be a bombshell if the FDA has some language in there concerning SRS marketing claims?

And then there are the billing code issues. Medicare pays more per fraction for SRS but what exactly qualifies as SRS? From a medical standpoint we know that gantry-mounted linacs are not really in the SRS business but from a billing standpoint is it permissible to use SRS codes for gantry-mounted radiotherapy? Or is that a massive Medicare fraud case in the making?

Don’t believe for a minute that Varian management just suddenly forgot to include their bogus SRS capability claims in their most recent RapidArc press release. This is a very high profile event for Varian. FDA clearance for marketing is big news and a big opportunity for them to tout their technology. No, I don’t know for sure what it is but there has to be a very good reason why Varian chose to exclude their typical SRS misinformation from this particular press release.

Yes, Jefferies had an internal report out sometime Thursday that was bullish on Accuray but so what? Jefferies has been bullish on Accuray for months now and their report was not posted on the headlines, blogs or reports sections of any stock reporting web sites and, in any event, would not account for Wednesday’s price action. Something else is going on here and it’s having an impact on both Varian and Accuray share prices these past two days.

Are the chickens finally coming home to roost for Varian and Tomo?

Member Avatar Redskins2k9 (< 20) Submitted: 2/22/2008 3:05:42 PM
Recs: 0

what does SRS mean? what does it do? i am interested in this company but I have yet to understand concretely what separtes accuray from the competition.

Member Avatar PauvrePapillon (99.82) Submitted: 3/3/2008 12:14:08 PM
Recs: 0

Conventional radiotherapy is generally used following open surgery with the goal of destroying any malignant cells left over that were missed and not removed during the surgery. The idea is that such cells already have abnormalities in their nuclear structure and therefore are more susceptible to radiation damage than healthy ones. Multiple treatments are administered over a series exposures (fractions) thus giving the healthy tissue a chance to recover.SRS stands for stereotactic radiosurgery. The idea of SRS is to deliver sufficient radiation to the tumor in one or a few treatments (fractions) to ablate (kill) the tumor without open surgery. There are four essential technical elements that allow and are necessary for this to work.One, the linac (the radiation generating device) is miniaturized. Two, this allows it to be attached and manipulated using a robotic arm. Three, a stereotactic imaging system (hardware and software) allows the computer to “see” the tumor in real time and four, additional systems (hardware and software) allows the computer to “see” any movement by the patient (in real time) and compensate for such movement (again in real time) during the treatment process.Only the CyberKnife has any of these four essential elements. They are all protected by multiple patents and, in addition, are technically dependent upon each other for development.Varian, Tomo and BrainLab all generate radiation using a conventional linac that weighs about 2,000 pounds. This type of linac is too heavy to mount on a robotic arm and, therefore, must be mounted on a gantry. The gantry can only move around the arc of a single plane. This limits the angles from which the linac can fire beams of radiation into the tumor. Whereas these gantry-mounted devices operate from a single plane, CyberKnife operates from all planes.This is essential because it allows for the development and implementation of treatment patterns that apply many beams of radiation all of which center on the tumor but, since they enter and exit from more locations, are able to minimize the dosage to the surrounding tissue.In order to understand this concept it is necessary to visualize in three dimensions. Most people can’t do this and hence most investors still don’t understand the difference between CyberKnife and everything else.To get a handle on this, imagine a starburst or daisy-like pattern centered (isocentric) on a small sphere (the tumor). If each unique pedal is a beam of radiation then each pedal goes through space (the healthy tissue) only once but converges many times on the center (the tumor).Keeping in mind that we can use multiple patterns centered on multiple points (non-isocentric) to create the most geometrically efficient patterns in terms of maximizing the beams intersecting the tumor, this is analogous to what CyberKnife does.Now imagine that we cut away all but one slice of the daisy so that we can flatten the daisy into one single flat plane. Each unique pedal still only goes through space (the healthy tissue) only once and each pedal still converges on the center but we have a much smaller number of beams hitting the target.This is analogous to what all gantry-mounted devices do and, if you can visualize this in three dimensions and understand the geometry of the treatment patterns thus available to this type of device, you can, once and for all, get how and why CyberKnife if fundamentally different from all competitors.Now we’ve only addressed essential element numbers one and two. We still have two other technologies to discuss but, again, they are dependent on the first two (the miniature linac and the robotically controlled system) so you can’t even begin to develop the second two until you have the first.For purposes of this discussion, there is no point in going further because we have already left Varian, Tomo, BrainLab and Elekta far behind with no way to catch up that wouldn’t infringe on Accuray’s patents.In their marketing materials, Accuray’s competitors like to use similar language, i.e., “minimizing damage to surrounding tissue” in order to confuse the issue. They even go as far as saying their machines are SRS capable which is a complete misrepresentation. Here is all you need to know.Regardless of what language they use or what claims they make, go to their web sites and look at their machines. With the exception of Elekta, which uses a continuous gamma radiation-emitting source located within a lead-lined football helmet-like containment device, all of the other machines use gantry-mounted linacs. They are all, by design, limited to treatment patterns that incorporate but a single plane and therefore can never produce the optimum treatment patterns necessary for SRS.The only competitor that is even in the SRS business is Elekta but its Gamma Knife doesn’t fire from anywhere. Its beams are fixed and therefore can only deliver one set treatment pattern. Further, because a head frame must be attached to the patient’s skull using four metal screws in order to center the treatment pattern on the target, the Gamma Knife can only be used on tumors located in the brain.Despite the misinformation generated by Varian, Tomo, BrainLab and Elekta concerning SRS and CyberKnife as well as the inertia of the medical establishment which is not generally friendly to new treatments, CyberKnife SRS is taking off all around the world and is now being used on tumors throughout the body. Patients are finding out about the treatment from their friends and family, from TV and from the Internet. They are self-referring themselves (walking into) CyberKnife clinics most all of which are reporting brisk patient put-through even upon opening.One study that bears close tracking is Roth/Anderson. Led by renowned thoracic surgeon Jack Roth from the M.D. Anderson Cancer Center in Houston, Texas and incorporating cases and researchers from many other hospitals, this study is designed to compare outcomes for early-stage lung cancer patients for conventional surgery versus CyberKnife SRS.It is expected to validate from a randomized and statistical perspective what has already been clinically observed, i.e., that CyberKnife patients are surviving longer with no risk of infection, no risk of anesthesia, no pain, no loss of healthy lung tissue, no recovery times and no quality of life issues.In about 18 months, the early results are going to start hitting the market and you are going to see a sea change in the way early-stage tumors of all types are treated.One more point to consider: M.D. Anderson is a long-time Varian customer with a Trilogy system. They are not using it for this study and they don’t use it for SRS period because, Varian’s marketing claims to the contrary, that isn’t what it does.

Member Avatar wait753 (< 20) Submitted: 3/5/2008 12:20:37 AM
Recs: 0

What is the energy object in the Cyberknife technology?

Member Avatar wait753 (< 20) Submitted: 3/5/2008 12:34:11 AM
Recs: 0

You might try It seems to provide a more neutral discussion of the technology than PauvrePapillon does. It also has links to the vendors in the field, such as Accuray and Brainlab.

Member Avatar wait753 (< 20) Submitted: 3/5/2008 12:53:49 AM
Recs: 0

What is your take on the increase in VAR's cash to $334M?

Member Avatar PauvrePapillon (99.82) Submitted: 3/17/2008 1:27:29 PM
Recs: 0

Yes, this Wiki listing has a link to Accuray but no discussion whatsoever of the CyberKnife. This is not a "more neutral discussion of the technology". This is an out-of-date discussion that would have been applicable during the Gamma Knife era, i.e., pre-CyberKnife, but is now completely obsolete. They are still talking about metal head frames and don't even acknowledged that FDA-approved SRS treatments are now being performed on tumors of the lungs, prostate, liver, kidneys, neck, spine and pancreas.If you don't understand the difference between gantry-mounted devices and CyberKnife or between conventional radiothereapy and SRS, it's best to just stay out of this space altogether.

Member Avatar imup (62.08) Submitted: 1/5/2010 5:58:03 PM
Recs: 1

I'm a radiation therapist. You can treat ALL cancers with a linear accelerator which has both MV (million volts or photons) and MeV (electrons) capabilities. Sterotactic machines are usually only used for brain tumors. Varian and Siemens are the leading producers of linear accelerators. There are other makers too, like Eleckta and GE, but just about any treatment facility you go in to in the U.S., will have a Varian. Varian makes the best treatment machines for external beam therapy. Siemens is a second best, but not nearly as user friendly and the machines break down a lot. A patient will come for about 40 treatments in a row excluding weekends. You do not want a machine that breaks down because you have to then cancel all the patients for the day and until you can get the biomed out to fix it. This will not make patients happy, so most facilities want to use a reliable machine with a proven track record. Each treatment machine costs at least a million dollars but will be in use for about 10 years before the technology starts changing enough to warrant a new machine. However, usually these machines will work for about 20 years.

Member Avatar Mega (99.97) Submitted: 5/7/2013 1:49:42 PM
Recs: 0

5 1/2 years later, Accuray is still unprofitable and the stock price is down 75%. Varian is still profitable and up 55%.

The moral: invest based on earnings and balance sheet fundamentals instead of scientific hype.

Featured Broker Partners