Dive Brief:

• Varian Medical Systems has begun 2019 by comfortably beating analyst revenue expectations and reporting a surge in global oncology orders.

• The manufacturer of radiotherapy medical devices and software generated first quarter sales of $741 million, compared to a consensus analyst forecast of $718 million.

• Despite the strong sales and its highest oncology order growth in a decade, Varian retained its full-year guidance in the face of geopolitical uncertainty and other potential headwinds.

Dive Insight:

Varian went into 2019 buffeted by a mix of powerful tailwinds and headwinds, largely due to the importance of China to its business and growth plans. China is already Varian's second largest market after the U.S.

Given that China has nearly three times as many annual cancer cases as the U.S. and uses radiation therapy far less, there is considerable scope to grow further. Seeing the potential to expand use of radiation therapy in China and other untapped regions, Varian developed a device, Halcyon, for resource-constrained markets — but then the trade war happened. At a time when Varian wanted to step up Sino-American trade, tariffs began eating into its financials.

Varian has had some success in securing exemptions from the tariffs but it remains subject to macro and geopolitical forces largely beyond its control. The tariffs had a negative impact of $11 million in the first quarter. As it stands though, the tailwinds enjoyed by Varian are blowing away such constraints on its growth.

Buoyed by 28% sales growth across Europe, the Middle East, India and Africa and a 7% increase in Asia Pacific, Varian's oncology business drove the company to a quarter of double-digit growth. Sales in the Americas dipped 2% but even there other aspects of Varian's results were positive. Over the past 12 months sales in the Americas are up 7% and there are reasons to think Varian will continue to grow in the relatively mature market. Notably, Varian reported a 12% increase in orders in North America, leading CEO Dow Wilson to suggest that more buyers in the region may be looking to upgrade their radiotherapy equipment.

"We might be seeing a little bit of an acceleration in the replacement cycle in the Americas," Wilson said on a conference call with investors. "I think Halcyon with the speed with which it goes in, it's ease-of-use, it's replacing some of this kind of really old freestanding market in the Americas."

While an acceleration of the replacement cycle would be a welcome boost, bigger opportunities may lie outside of the Americas. Last year, China increased its license quotas for devices such as Varian's Halcyon and TrueBeam. As Varian has a track record of winning more than half of public tenders in China, the increase could benefit its business. Varian began selling Halcyon in China this month.

Analysts at UBS think the quotas "could deliver significant upside" for Varian in 2020. Even without the impact of the quotas, Varian achieved "strong double-digit orders growth" in China in the first quarter, contributing to a 25% increase across Asia Pacific.

Sustained double-digit order growth in China and other parts of the world has given Varian a trailing twelve-month orders growth rate of 11%. That suggests Varian can look forward to future quarters of double-digit growth, provided it stays clear of the macro and geopolitical threats to its business.