Varian Medical Systems, Inc. (NYSE:VAR) recently announced that it has received regulatory clearances from the U.S. antitrust authorities and the German Federal Cartel Office (FCO) for the $1.3-billion acquisition of Sirtex Medical Limited.
In a bid to become the global leader in multi-disciplinary integrated cancer-care solutions, Varian Medical signed an agreement to acquire the Australia-based global life sciences company onJan 29.
Favorable Price Performance
Over the past year, Varian Medical outperformed its industry in terms of price performance. The company’s shares have returned 39.9%, comparing favorably with the industry’s rally of 26%. Also, the current return is higher than the S&P 500 index’s gain of 23.5%.
Strong revenues from its various Oncology and Imaging Component products, focus on inorganic growth and strong overseas presence in emerging countries are positives.
The Deal in Detail
The transaction is expected to strengthen Varian Medical’s footprint in Australia after its close in May 2018. The acquisition will be accretive to earnings per share in the first fiscal after the closing of the transaction.
The acquisition is likely to provide customers with a wider range of cancer care solutions.
The deal is expected to expand Varian Medical's addressable market into interventional oncology. Per management, Varian will leverage its capabilities in treatment planning and delivery, image guidance, processing, oncology practice management software and radiation safety unit on Sirtex's interventional oncology platform.
Sirtex is a global leader in radioembolization and focuses on interventional oncology therapies. The company has distribution operations in the United States, Europe and Asia.
The Regulatory Approval
Varian Medical got an ‘early termination of the waiting period’ under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976 for the deal.
Per this act, companies are not permitted to complete their scheduled mergers, acquisitions or transfers of securities or assets, until they have made a detailed filing with the U.S. Federal Trade Commission and Department of Justice. Further, the companies should ensure that the transaction will not affect U.S. commerce under the current antitrust laws.
The German FCO also approved the proposed acquisition after confirming that it does not violate the Act Against Restraints of Competition.
Oncology Segment Gets a Boost
Varian Medical’s oncology segment in APAC is likely to get a boost post the deal closure. Oncology Systems is Varian Medical’s largest operating business segment.
In the last quarter, net oncology revenues totaled $649 million, up 14% on a year-over-year basis. Gross orders were $620 million, up 7% from the year-ago quarter. In APAC, gross orders increased 6% year over year with strong orders growth in Greater China and Japan. Operating earnings for the segment rose 19%.
Market Potential
Per Research And Markets, the global oncology market is estimated to witness a CAGR of 10.66%, from $118.6 billion in 2016 to $241.0 billion in 2023. International emerging markets are under-equipped to address the growing incidence of cancer.
The company’s strong overseas presence will enable it to cash in on this opportunity in emerging markets. In line with growing demand for cancer treatment in overseas markets, Varian Medical’s sales in Europe, Africa and particularly Australia, are growing at a faster rate than in the domestic market.
However, the company faces stiff competition from Accuray Incorporated (NASDAQ:ARAY) in the oncology-technology space.
Zacks Rank & Other Stocks to Consider
Varian Medical has a Zacks Rank #2 (Buy).
Other top-ranked stocks in the broader medical sector are PerkinElmer (NYSE:PKI) and Bio-Rad Laboratories (NYSE:BIO) .
PerkinElmer has a long-term expected earnings growth rate of 12.3%. The stock carries a Zacks Rank #2.
Bio-Rad Laboratories sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a long-term expected earnings growth rate of 20%.
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