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 .