Varian Medical Systems, Inc. Interview with: Elisha W. Finney, CFO, Vice President Business News, Financial News, Stocks, Money & Investment Ideas, CFO Interview and information on their integrated radiotherapy solutions and X-ray products. |
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"To print this page go to file and left click on print" Varian
Medical Systems IMRT treatment for cancer is driving the marketplace today Varian Medical Systems, Inc. 3100 Hansen Way
Interview Conducted By: CEOCFOinterviews.com Bio of Elisha W. Finney, Vice President & Chief Financial Officer
Elisha W. Finney comes to this position with
a background as treasurer of Varian Associates, where she managed a staff responsible for
Varian Associates domestic and international banking, foreign exchange, corporate
finance, credit, and stock administration activities. In addition, she oversaw the
companys risk management function. Finney joined Varian Associates as a risk
manager in 1986 after serving in a similar role with the Fox Group in Foster City,
California and Beatrice Foods in Chicago, Illinois. She was named corporate
treasurer in March 1988. She holds a BA degree in risk management and insurance,
from the University of Georgias Terry College of Business. Finney also earned
an MBA degree from Golden Gate University in San Francisco, where she was named
Outstanding Finance Student. She has completed the Executive Management Program
co-sponsored by Stanford University and the American Electronics Association. In August 1998, when Varian Associates, Inc.
announced its intention to separate into three independent businesses, Finney was selected
to serve as vice president, finance and chief financial officer for Varian Medical
Systems, Inc. This transaction became effective on April 2, 1999. Varians X-ray Products business has
also developed an all-digital flat-panel image detector capable of producing real-time
fluoroscopic and radiographic images. Systems incorporating these amorphous silicon panels
are expected to improve the efficiency of diagnostic x-ray imaging. Varian Medical Systems also operates a
BrachyTherapy business, which develops, manufactures, supplies, and services devices and
software for treating cancer through radiation sources that are placed within the
patient. The business financial results are incorporated within results for
the Ginzton Technology Center. Ms. Finney: We
have a 45-year-old heritage. We were a part of Varian Associates Inc. and one of the first
companies in Silicon Valley, yet we enjoy the excitement of a start-up company. We split
Varian Associates into three separate companies about three and half years ago, in April
of 1999. Varian Medical Systems emerged as the worlds largest medical device company
almost exclusively dedicated to the treatment of cancer. Unfortunately, we are in a growth
industry right now, because cancer is quickly becoming the number one cause of death
around the world. CEOCFOinterviews:
What is your estimated market penetration? Ms. Finney:
Varian has about a 55 percent share of the worldwide market for radiotherapy
systems. We estimate at this point that we have equipped about 20 % of the
worlds cancer clinics, with systems for giving IMRT treatments. However, only a
fractionless than 200 centers around the worldare clinically treating with
IMRT. So there is a lot of room for growth. One of the pioneers in this area has
been Memorial Sloan-Kettering Cancer Center in New York. They have had
three-year follow up results in a prostrate cancer study that involved hundreds of
patients. The 3-year relapse-free survival rates for favorable, intermediate,
and unfavorable risk patients were 92 percent, 86 percent, and 81 percent, respectively,
for patients treated with IMRT. Patients who received a more conventional treatment
had comparable 3-year relapse-free survival rates of only 75 percent, 55 percent, and 35
percent. In addition, complication rates that had been running as high as 17% went
down to 2%with IMRT.. These outcomes were overwhelmingly positive. CEOCFOinterviews:
How are you getting the word out there? Ms. Finney: When
a hospital buys an IMRT-capable machine, we help them promote it. We give them
ready-made marketing materials so they can create billboards, radio and television spots,
and press releases. We help them advertise the fact they are doing this world-class
new treatment. This creates a kind of system envy among competing hospitals in
a local area. If you were to drive into Manhattan today, you might see a billboard from
St. Vincents Comprehensive Cancer Center, advertising their IMRT capability. CEOCFOinterviews:
Are you addressing this on a global basis? Ms. Finney:
As a very general comment, the US does tend to be a big technology buyer, but we are
making efforts to take this technology outside of the US, where the market is obviously
huge. Outside of the US, most places have only a fraction of the machines needed to get
the rest of the world up to an acceptable treatment level. We are sponsoring IMRT
seminars, we distribute press releases, and we present at international medical
conferences.. There was a half-hour documentary about our technology on German
television last year. So we are trying to get the word out on a global basis. CEOCFOinterviews:
Where will the majority of your growth come from? Will it be through expanded exposure,
partnerships or acquisitions? Ms. Finney:
I think our growth is going to come from a combination of all of those things.
Being only 20% of the way to full market penetration with IMRT, we believe we
still have several years of growth ahead with IMRT . That being said, IMRT is not the
end all of cancer treatment; we continue to have a very strong emphasis on
R&D. CEOCFOinterviews:
Is the IMRT treatment standalone or does it need to be combined with surgery or
chemotherapy? Ms. Finney:
Unfortunately today, cancer treatment is as much an art as a science. It really does
depend on the type of cancer, where it is located, the stage of cancer, and many other
factors, including doctors training and preferences. For example, with
prostrate cancer, there are many patients receiving IMRT alone; there are others choosing
IMRT combined with other therapies. For breast cancer, the gold standard
todaydepending on the stage of the canceris to do a lumpectomy first and then
follow it with radiation therapy. Therefore, when I say that radiation is used in about
55% of all cancer treatments, I mean either alone or in combination with other
treatments. As I mentioned, Varian is also involved in the brachytherapy
businessplacing radioactive sources directly into a tumor with a catheter or needle.
Hence, our business interests cover a range of approaches to cancer care. CEOCFOinterviews:
This must be very exciting for you since cancer is one of the leading causes of death in
the world today. Ms. Finney:
Exactly. It is a disease of age and I also think that improving diagnostics will
continue to play an important role in expanding our market. The enhanced screening
that is possible with PET scanning and mammography, for example, means we are catching
cancer earlier, when it is most susceptible to radiation and before it has spread.
Radiation is effective in treating localized cancer, while drugs are used to treat
more disseminated cancer. So our technology does not compete with chemotherapy
and other drug therapies; it is used in combination with them. CEOCFOinterviews:
Do you have an upgrade system that you offer your customers? Ms. Finney: We do have a very healthy upgrade program. We have about a $50 or $60 million dollar upgrade business. Hospitals that have a Varian machine that was purchased after 1988, which is when we went from an analog machine to a digital platform, can get those machines upgraded. Our upgrade business is very healthy. CEOCFOinterviews:
Does Varian offer leasing and financing to your customers? CEOCFOinterviews:
What should an investor be looking at when considering your company for the first time? Ms. Finney:
I think that backlog is the best indicator of our business going forward, and I have
the luxury of a significant backlog. I am sitting on a backlog of just under $700 million
dollars today. Typically, when something is booked into backlog, it sits there for nine to
twelve months before we ship products, because the hospital is building or renovating a
room to house the equipment. I can manufacture product more quickly than that, but again,
we have to wait until our customer is ready to take shipment. By virtue of that
backlog, I have about a years worth of sales that we know will occur over the next
twelve months. Hence, this gives me very good visibility and predictability over a
long period of time. I am not at the mercy of one quarters orders to meet the
sales targets for that quarter, so we really do have a good view of our business going
forward. CEOCFOinterviews: Where are your machines made and do you have enough facilities to store your backlog? Ms. Finney:
The linear accelerators themselves are manufactured at our headquarters in Palo
Altoand have been for the last 40 years. We just did expand into Las Vegas, where we
have a facility for manufacturing our industrial acceleratorsthe ones that are used
for non-destructive testing and cargo screening. So we have a back-up facility if we need
it. We are shipping around 325 machines per year and have the capacity in Palo Alto
to increase that number. Our capacity should remain sufficient over the next couple
of years. It will be some time before we have to worry about adding capacity. We
have very low capital requirements in Palo Alto; our capital expenditures here amount to
only about $20 or $25 million dollars a year. CEOCFOinterviews:
That is great. You have everything lined up just the way you want it. Ms. Finney:
Well, we never get smug, because there is always risktitle doesnt
transfer on the day you expected, or something gets caught in the longshoremans
strike and is sitting on a dock somewhere. When I talk about visibility, Im
looking out over a nine- to twelve-month timeframe. Nevertheless, quarter in and
quarter out, I have to worry about execution. We have to stay in constant contact with our
customers about their readiness, to hit their target installation dates, and know when
title is going to transfer. I have a saying around here that people have twenty-four
hours to celebrate after a quarter then it is back to the grind. CEOCFOinterviews:
In closing, what would you like to say to shareholders, potential investors and
individuals in the medical community? Ms. Finney: I think we hit on all of the high points. I would say that in terms of operating marginsjust to put it into perspectivewhen we started the company three and a half years ago, we had an operating margin of 11 percent for fiscal year 1999. We just ended this fiscal year at 16 and a half percent and based on our guidance for fiscal year 2003, we will be up one point to about 17 and a half percent. I think this puts it in perspective. We generate shareholder value by focusing on what we do best, which is helping to cure cancer. disclaimers |
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