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Fiscal 2000 was an outstanding year for Varian Medical Systems by almost every measure.
We reported:
- A 28% increase in annual earnings per diluted share to $1.64 over pro forma earnings per diluted share of $1.28 for fiscal 1999
- A 17% or $100 million increase in annual sales from fiscal 1999 levels to $690 million
- A 19% increase in annual net orders to $762 million
- An 18% increase in our year-ending backlog to a record $473 million
All three of our businesses-Oncology Systems, X-Ray Products, and the Ginzton Technology Center-grew annual sales in double-digit percentages. We improved our gross margin; controlled our selling, general, and administrative expenses as a percentage of sales; increased our operating earnings; and boosted EBITDA (earnings before interest, taxes, depreciation, and amortization). Sales per employee rose significantly. On the balance sheet we eliminated virtually all short-term debt, substantially improved our cash position, and raised stockholders' equity in the company.
Our company is on the forefront of the most exciting revolution in radiotherapy that I have seen in more than 30 years of working in this industry. Major technical advances in diagnostic imaging and radiotherapy systems now enable physicians to see and treat tumors more effectively. Clinicians around the globe are developing and using new techniques, including multi-modality diagnostic imaging, IMRT (intensity modulated radiation therapy), respiratory gating, and brachytherapy, to substantially improve cancer outcomes. They are protecting healthy tissue while zeroing in with laser-like precision on tumors that heretofore would have been deemed untreatable. They are using this improved accuracy to safely deliver higher doses that they would never have considered prescribing until now.
As World Health Organization statistics show, cancer is a growing epidemic fueled in part by the aging of the baby boomer generation. The need for new and better treatments is more urgent than ever.
Medical Centers in all regions of the world are modernizing and expanding their radiotherapy systems to take advantage of the new digital technology and to address underserved populations. Adding impetus to this change are patients who have begun using the power of the Internet to research and demand the best care possible. These driving forces are transforming radiation oncology, and the pace of change is quickening.
Partners for Life
The need is clear for rapid development and deployment of better medical treatments for cancer, heart disease, and other illnesses. Helping to address this are physicians, physicists, therapists, researchers, patients, clinical administrators, financiers, governments, engineers, and suppliers like us -Partners for Life.
In these pages we describe people who are partnering with Varian and using our most advanced technology to treat prostate, breast, head and neck, brain, lung, pancreas, and other types of cancer. You will also learn about advances in our X-ray imaging technology, including our flat panel X-ray detectors for filmless imaging and our advanced CT scanner tube for faster, high-resolution CT scanning.
The Next Step for IMRT
After 10 years of intense development and collaboration with the clinical community, Varian has developed a reliable system for IMRT. We now have the world's only fully integrated system of hardware and software needed to make this promising technique a reality around the world. Clinical studies now show IMRT's great potential to dramatically improve outcomes with simultaneous increases in tumor control rates and reductions in complications.
Our challenge now is to move IMRT from leading universities into the clinical mainstream as a new treatment standard with consistent processes that are easy to implement. We have concentrated on developing user-friendly software for all aspects of patient treatment and clinical management. This includes a recent new release of our Helios inverse treatment-planning tool that should ease clinical transition to IMRT protocols. We are focusing on customer training programs, including very popular seminars for practitioners interested in learning more about IMRT. More than 2500 clinicians have attended Varian IMRT presentations given by clinical peers in North America, Europe, and Asia.
We are simplifying system purchases by arranging financing for customers. This program, begun early in fiscal 2000, is off to a fast start with a long list of customers who have taken advantage of the help. Working with industry peers and customers, we are also supporting and enhancing already favorable IMRT reimbursement codes that make it possible to recover a system investment in just 18 to 36 months.
Continued integration of all aspects of cancer care will make implementation easier. During fiscal 2000 we formed an alliance with GE Medical Systems to sell its imaging equipment to radiation oncology departments in North America. This made it possible to offer our customers end-to-end solutions from diagnosis through treatment. The response has been excellent. GE Medical Systems imaging equipment is already a significant presence in the radiation oncology market. Through this alliance we have ushered in an era of See and Treat Cancer Care. Clinics can pinpoint cancerous tumors with GE diagnostic equipment and treat them using our SmartBeam IMRT system. We highlighted this in our virtual clinic at the recent annual meeting of the American Society of Therapeutic Radiology and Oncology (ASTRO) in Boston.
Our ASTRO exhibit also featured a completely redesigned medical linear accelerator. The Silhouette Edition Clinac enables customers to fit the most advanced radiotherapy systems into small treatment rooms now occupied by aging cobalt systems. Developed with considerable input from clinics, it is our most patient-friendly unit, with optional photographic murals, a stereo sound system, and toys for pediatric treatment centers.
The company is engaged in a patient-focused educational campaign. It concentrates on building awareness of IMRT with media relations, advertising, and a newly designed website that is attracting more than 1 million hits each month. We are committed to additional patient support through alliances with advocacy groups that are working for the prevention, detection, and treatment of cancer. The company also annually commits funds toward projects advancing radiotherapy technology with partners, including hospitals and universities with research capabilities.
New Alliances
Varian remains committed to advancing cancer care with a broad array of health care information products and new alliances. The company is also embarking on new applications for radiotherapy, including the treatment of cardiovascular disease through an alliance with Cordis, a Johnson and Johnson Company. Cordis will market one of only two brachytherapy systems approved by the U.S. Food and Drug Administration for preventing restenosis in clogged arteries following balloon angioplasty procedures. Varian will supply and service radiation components for the system.
Partnerships also are playing a role in the growth of our X-Ray Products business. Varian engineers constantly work with diagnostic imaging equipment manufacturers to develop tubes for faster CT scanners. This has led to the commercialization of a new anode-grounded design used in our newest tube, the most powerful tube on the market for high-resolution, high-speed CT scanning. In the last year, our engineering team has tripled both tube life and manufacturing volume on this new product.
Formula for Success
The company has the resources in its Ginzton Technology Center to fund research in new breakthrough projects with high growth potential. In fiscal 2000, Varia's new amorphous-silicon-based digital X-ray detectors were successfully shifted from the Ginzton Center to the X-Ray Products business for commercialization. The Ginzton Center also developed the respiratory gating system that was among the newer products featured by Oncology Systems at ASTRO. This product could be a major breakthrough for more effective treatment of lung cancer. The Ginzton team is continuing to commercialize our brachytherapy business-another promising growth story for the company.
Our people are a big part of the Varian Medical Systems story. We owe our success to committed and energetic employees who make our partnerships work. They share a desire to help others while earning a good living and building a profitable business. We hope that our investors, customers, suppliers, and others who see this report share in a feeling of pride at being among the Partners for Life. Together, we have had a very good fiscal 2000 and we are looking forward to an even better fiscal 2001.
Richard M. Levy, President and CEO
December 8, 2000
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