VARIAN MEDICAL SYSTEMS JP Morgan Healthcare Conference - Dow Wilson, CEO
January 13, 2015
January 2015 © 2015 VARIAN MEDICAL SYSTEMS. ALL RIGHTS RESERVED.
Forward-Looking Statements
• Forward-Looking Statements • Except for historical information, this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements concerning industry outlook, including growth drivers; the company’s future orders, revenues, backlog, or earnings growth; future financial results; market acceptance of or transition to new products or technology such as our Edge™ radiosurgery system, TrueBeam™ and radiographic flat panel detectors, image-guided radiation therapy, stereotactic radiosurgery, filmless X-rays, proton therapy, and security and inspection, and any statements using the terms “could,” “believe,” “expect,” “outlook,” or similar statements are forward-looking statements that involve risks and uncertainties that could cause the company’s actual results to differ materially from those anticipated. Such risks and uncertainties include global economic conditions; the impact of the Affordable Health Care for America Act (including excise taxes on medical devices) and any further healthcare reforms (including changes to Medicare and Medicaid), and/or changes in third-party reimbursement levels; currency exchange rates and tax rates; demand for the company’s products; the company’s ability to develop, commercialize, and deploy new products; the company’s ability to meet Food and Drug Administration (FDA) and other regulatory requirements for product clearances or to comply with FDA and other regulatory regulations or procedures; changes in the regulatory environment, including with respect to FDA requirements; the company’s assessment of the goodwill associated with its particle therapy business, challenges associated with the successful commercialization of the company’s particle therapy business; the effect of adverse publicity; the company’s reliance on sole or limited-source suppliers; the impact of reduced or limited demand by purchasers of certain X-ray products; the company’s ability to maintain or increase margins; the impact of competitive products and pricing; the potential loss of key distributors or key personnel; challenges to public tender awards and the loss of such awards or other orders; and the other risks listed from time to time in the company’s filings with the Securities and Exchange Commission, which by this reference are incorporated herein. The company assumes no obligation to update or revise the forward-looking statements in this presentation because of new information, future events, or otherwise.
2 | VARIAN MEDICAL SYSTEMS Technology Leader in Growing Markets
• Varian Oncology Systems – Radiotherapy – Radiosurgery – Brachytherapy
• Varian Imaging Components – X-Ray Tubes – Digital Flat Panels – Security & Inspection Products
• Varian Particle Therapy – Proton therapy
3 | VARIAN MEDICAL SYSTEMS OUR VISION: TO HELP SAVE MILLIONS OF LIVES EVERY YEAR, EVERYWHERE.
4 | VARIAN MEDICAL SYSTEMS FY15 Focus on Our “Big 5” Strategic Priorities
Go Global
Grow Software and Services
Innovate
Commercialize Protons
Drive Operational Excellence
5 | VARIAN MEDICAL SYSTEMS Oncology Systems
6 | VARIAN MEDICAL SYSTEMS
The Global Economic Cancer Burden
Nations investing more to fight growing cancer burden $895B cancer cost 27M 17.5M New cases Deaths annually by 2050 annually
*Economic losses from disability and premature deaths. Excludes direct medical costs Sources: American Cancer Society, Livestrong, World Health Organization
7 | VARIAN MEDICAL SYSTEMS
Cancer Needs Growing with Aging Populations
1400
1200
1000
800 >80% Rise in world 600 population over 60
400 People 60 Years and Older ( in Millions) in ( Older and Years 60 People
200
0 2010 2030 Source: U.S. Census Bureau
8 | VARIAN MEDICAL SYSTEMS 10,000+ Linacs Needed
Number of radiotherapy machines per million people
No machines
Less than 1
5 or less
10 or more
9 | VARIAN MEDICAL SYSTEMS 7,500 Varian Accelerators 60% of global installed base
2.8M patients treated annually
10 | VARIAN MEDICAL SYSTEMS Americas Market Drivers in 2015
• North America - Shift to SRS driving replacements - Reimbursement helping - Productivity initiatives/software - Service growth • Latin America - Equipment shortage - Demand for quality care
11 | VARIAN MEDICAL SYSTEMS EMEA Market Drivers in 2015
Aging installed base • Focus on productivity Emerging markets • India, Eastern Europe, Africa SRS adoption – lung, liver
12 | VARIAN MEDICAL SYSTEMS APAC Market Drivers in 2015
Increased use of RT China (20%), Japan (28%) Software/Service Expansion Focus on Value Service Agreements
13 | VARIAN MEDICAL SYSTEMS New Products Drive Growth
45% of FY2014 orders came from products introduced in the last 5 years
14 | VARIAN MEDICAL SYSTEMS Promising SBRT Results in Lung Study
"Technologies have developed in the last few years that have yielded game-changing, paradigm-shifting approaches, allowing us to reconsider how radiation is delivered in combination with surgery, chemotherapy, and other systemic therapies.” Dr. Robert Timmerman, UT SW Medical Center
15 | VARIAN MEDICAL SYSTEMS Upgrades Create Growth Opportunity
Upgrade
6DOF Couch
RapidArc $440M MLC / PV 5-Year Opportunity TrueBeam 2.0 OBI SRS Package
16 | VARIAN MEDICAL SYSTEMS New Products Accelerating Software Growth
Oncology Software RapidPlan RapidPlan InSightive Analytics $200M Qumulate QA 5-Year Opportunity Velocity
17 | VARIAN MEDICAL SYSTEMS Growing Oncology Services to $1B
• 36% of FY14 OS Orders / 40% of FY14 OS Revenues • Delivers strong profitability
18 | VARIAN MEDICAL SYSTEMS Long Term Oncology Growth Drivers
• Demographics • Multi-Year Agreements • Emerging Markets • Service & Software • System 5-7% Upgrades Annual Growth • Aging Opportunity Installations
19 | VARIAN MEDICAL SYSTEMS
Imaging Components
20 | VARIAN MEDICAL SYSTEMS
Imaging Components
Designs & Manufactures • X-ray Tubes • Linear Accelerators • Workstations • Flat Panel Detectors
Sells to
• Equipment Manufacturers • Aftermarket Distributors
21 | VARIAN MEDICAL SYSTEMS Imaging Components Market
$2.3B Addressable Market Market Product • X-ray Tubes Medical Imaging • Flat Panels • Software • X-ray Sources Industrial Inspection • Detectors • X-ray Sources Cargo and Security • Detectors
Source: Varian 2014 Market Analysis
22 | VARIAN MEDICAL SYSTEMS Varian Share in Imaging Components Market
Diagnostic and CT Flat Panel Detector Tubes
11% 23% Modality OEMs 42% Modality OEMs 24% Varian Varian 65% Other Other 35%
23 | VARIAN MEDICAL SYSTEMS Imaging Growth Initiatives in 2015
• Grow with current OEMS
• Add new customers in Asia, Brazil • Extend leadership in tubes, panels with new capabilities
• Expand software offerings • Focus on industrial market $400M • Develop/acquire new product lines Potential incremental revenues in 5 Years
24 | VARIAN MEDICAL SYSTEMS Moving to Expand Imaging Portfolio
• Add image analysis software to imaging product portfolio
• Offer more complete subsystems with panels/workstations/software
• Leverage OEM relationships to accelerate market penetration
25 | VARIAN MEDICAL SYSTEMS Long Term Growth Drivers - Imaging
• Digital Imaging Transition
• Expanding Product Portfolio
• Service & Software
• Emerging Markets/ New Players 75-97%% AnnualAnnual GrowthMarket GrowthOpportunity Opp’ty
26 | VARIAN MEDICAL SYSTEMS Particle Therapy
27 | VARIAN MEDICAL SYSTEMS
10 Varian Proton Projects
Booked orders KFMC-King Fahd Scripps Proton Medical Center Therapy Center Treating patients
PTC St. Petersburg, Rinecker Proton Contracted, but not Russia Therapy Center financed, and not booked Cincinnati Children’s University of Hospital Maryland
Paul Scherrer Georgia PT Center Institute (Emory)
National Taiwan UT Southwestern University (Taipei) Medical Center
28 | VARIAN MEDICAL SYSTEMS Value of protons - lower complications, costs?
Head & neck cancer study suggests protons could have lower costs through lower complications Dr. Steven J. Frank, M D Anderson
29 | VARIAN MEDICAL SYSTEMS Proton rationale – cost efficiency
Proton cancer therapy may cost the same or less than other cancer therapies. MD Anderson breast study using Medicare reimbursement codes
30 | VARIAN MEDICAL SYSTEMS Proton Project Potential
$2.5B by 2030
1000 treatment rooms by 2030
Source: MEDraysintell
31 | VARIAN MEDICAL SYSTEMS Proton Market
300 Cumulative Number of 250 PT Treatment Rooms 200
150
100
50
0
32 | VARIAN MEDICAL SYSTEMS Long Term Growth Drivers - Protons
• Demand for Optimal Dose Distribution • Evolving Technology – Clinical capability – Cost efficiency $1.3B 5 Year Market Opp’ty
33 | VARIAN MEDICAL SYSTEMS Long-Term Growth Opportunities
34 | VARIAN MEDICAL SYSTEMS
Long-Term Growth Targets
• OS aiming for mid single digit growth Revenue • IC aiming for mid-to-high single digit growth 6-8% • PT aiming for > $250M Gross • Maintain at current levels – Service v. Geo • Pricing pressures mitigated by cost 6-8% Margins reductions Operating • Proton becomes profitable – more Service • R&D and SG&A grow slower than Revenue 8-10% Margins
Goal: Drive Operating Earnings Faster Than Revenue Double Digit EPS Growth
35 | VARIAN MEDICAL SYSTEMS