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Varian Medical Systems (NYSE:VAR)

Q4 2011 Earnings Call

October 27, 2011 5:00 pm ET

Executives

Spencer R. Sias - Vice President of Corporate Communications & Investor Relations

Elisha W. Finney - Chief Financial Officer and Corporate Senior Vice President of Finance

Timothy E. Guertin - Chief Executive Officer, President and Executive Director

Analysts

Junaid Husain - Ticonderoga Securities LLC, Research Division

Amit Bhalla - Citigroup Inc, Research Division

Vivian Cervantes - Kaufman Bros., L.P., Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Anthony Petrone - Jefferies & Company, Inc., Research Division

Tycho W Peterson - JP Morgan Chase & Co, Research Division

David R. Lewis - Morgan Stanley, Research Division

Dalton L. Chandler - Needham & Company, LLC, Research Division

Spencer R. Sias

Thank you. Good afternoon, and welcome to Varian Medical Systems Conference Call for the Fourth Quarter of 2011. With me are Tim Guertin, President and CEO; Elisha Finney, CFO; and Tim Tai Chen, our Corporate Controller. Tim and Elisha will summarize our results. We will take your questions following the presentation.

To simplify our discussions, unless otherwise stated, all references to the quarter or year are fiscal quarters and fiscal years. Quarterly comparisons are for the fourth quarter of fiscal 2011 versus the fourth quarter fiscal 2010. And annual comparisons are for fiscal 2011 versus fiscal 2010. Except as otherwise stated, all results are for continuing operations, which exclude the sales of the research instruments portion of ACCEL.

Please be advised that this presentation and discussion contains forward-looking statements. Our words and phrases such as outlook, could, should, believe, opportunity, can, estimate and similar expressions are intended to identify those statements which represent our current judgment on future performance or other future matters. While we believe them to be reasonable, based on information currently available to us, these statements are subject to risks and uncertainties that could cause actual results to differ materially.

Some of the important risks relating to our business are described in our fourth quarter earnings release and in our filings with the SEC. We assume no obligation to update or revise the forward-looking statements in this presentation and discussion because of new information, future events or otherwise.

As a quick reminder, we'll be holding our fiscal year-end meeting for investors in New York from 11:30 to 1:30, next Thursday, November 3 in New York. Management presentations also will be webcast and details will be available on our IR site. We look forward to your participation. And now, here's Tim.

Timothy E. Guertin

Thanks, Spencer. Good afternoon, and welcome. I'm pleased to report that Varian has finished fiscal year 2011 with another good quarter. Our businesses in Oncology Systems and X-ray Products ended the fourth quarter on a solid footing with growth in revenues, net orders and backlogs. On top of that we had promising developments in our emerging businesses including the booking of an order and revenue for the new Scripps Proton Therapy Center. We are pleased with this overall performance, which we believe has positioned Varian for a continued growth in fiscal 2012.

To quickly summarize our results, revenues rose 10% for the quarter to $719 million and 10% for the year to $2.6 billion. Earnings per diluted share increased 9% for the quarter to $0.95 and 16% for the year to $3.44. Cash flow from operations for the fourth quarter was $146 million. We closed the quarter with $564 million in cash and cash equivalents and $198 million of debt after spending $267 million to repurchase and retire 4.8 million shares of stock and our quarter-ending backlog grew 15% to a record $2.5 billion. All of our businesses contributed to the order of growth during the quarter, and I'll focus now on the operational highlights for each of our businesses.

Oncology Systems' fourth quarter net orders totaled $717 million up 9%, with a 2% decline versus strong year-ago comparisons in North America and growth of 22% in international markets. Oncology's net orders for the fiscal year increased 8% to $2.2 billion with 5% growth in North America and 11% growth in international markets, which generated about 55% of total annual net orders for this business.

The fourth quarter order growth in our Oncology Systems segment demonstrates the value of having a geographically diverse business together with a strong portfolio of desirable new products and services that advance clinical capabilities and efficiencies. Healthy demand for our versatile TrueBeam platform for radiotherapy and radiosurgery as well as our service business drilled the oncology order growth. We booked nearly 90 orders for TrueBeam during the quarter, bringing total orders for this platform since its introduction to some 380 units. Worldwide unit orders for our accelerators were up for the quarter and for the year. We believe our oncology business gained market share during the year in North America and Europe and succeeded in holding share in Asia with the help of a strong finish in the second half. TrueBeam was key to this performance, particularly in North America. We had a major win in this side in the Midwest where we are displacing several competitive units. We also had big wins at Barnes-Jewish Hospital in St. Louis, Mayo Clinic, UPMC in Pittsburgh, and the Vantage Oncology clinical network.

TrueBeam has now been purchased by 28 of the top 50 cancer centers in the U.S. and it constituted roughly 70% of our total high-energy unit machine orders in North America for the fourth quarter and for the year. There was also a strong interest for TrueBeam during the quarter in Europe where have achieved 2 significant wins, which again demonstrate our growing ability to win business in clinics that have traditionally been competitors' strongholds. Lung Hospital in Sweden has been an elected primary site -- research site for years, but it ordered 4 TrueBeam to be installed in 2012. It is also replacing its software with Varian's ARIA and Eclipse products. We had another big success in the Netherlands at the Masteral Clinic, which has been a primary Siemens research site.

Subsequent to the close of the quarter, we received 2 orders for TrueBeam unit, 2 TrueBeam units. The center has also ordered a full suite of Varians software for TrueBeam planning and oncology information management.

There've been many questions from investors regarding the condition of the European economy and its impact on our business. While we've seen softness in some parts of Europe, overall demand within the region including India in the Middle East contributed to the reported net order growth in the region for the quarter and for the year. Japan led strong net order growth in the Far East during the quarter, Japan was down for the year because of a tough comparable spending from an almost $60 million government stimulus program in the first half of fiscal year 2010. For the year, Far East net orders were flat with double-digit gains in China and several other countries that offset the decline in Japan.

Net order growth in the rest of the world including Australia and Latin America was robust for the quarter and for the year, order gains in Latin America stemmed from key wins in Mexico, Panama and the Dominican Republic. Looking around the globe, we booked orders from more than 50 countries during the quarter. The important point here is that we're helped to a great degree by having a global infrastructure and a geographically diversed business. The strength in one part of the world can more than make up for weakness in another region.

The oncology order growth was also helped by a very strong service business, where annual orders grew by nearly 15%, more than $650 million, which represents nearly 30% of total annual orders and revenues for this segment. This recurring revenue stream is becoming a bigger portion of our Oncology business. We provide service for installations in more than 100 countries around the world.

Subsequent to the quarter, we acquired Calypso to complement Varian's motion management technology. This will enable Varian to offer cancer clinics additional real-time, non-ionizing tumor-tracking tools, including a single-use implantable transponders for enhancing the precision of radiotherapy and radiosurgery. We expect the Calypso products to enhance our growth as we make them more broadly available to the clinical community through our global marketing and sales channels.

The combination of Varian and Calypso technology has already resulted in promising findings for our prostate cancer patients. Earlier this month at ASTRO, the world's largest annual medical meeting for radiation oncology, researchers from 21st Century Oncology in Florida showed that 80% -- I mean, excuse me, that 80 prostate patients treated with radiosurgery using Varian and Calypso technology had favorable health-related quality of life scores and minimal toxicities, suggesting that it may be a viable alternative to longer, more time-consuming radiotherapy treatments.

We continue to be excited by our growth possibilities in radiosurgery, and ASTRO occasions several significant medical studies that highlighted the potential of this treatment method. For example, researchers from VU University Medical Center in Amsterdam and Washington University in St. Louis presented separate studies showing the promise of radiosurgery as a potentially viable alternative to surgery for treating early-stage, non-small cell lung cancer. The VU study involving 177 patients demonstrated that at 3 years post-treatment, 93% of the patients in the study did not show local tumor re-growth. This is comparable to outcomes from traditional surgery that involves a measurably higher risk of death from infection, anesthesia, and other competitions. The Washington University study involving inoperable patients with non-small cell lung cancer tumors in an essential part of the lung also showed promising results. These studies suggest that radiosurgery that couples faster, more precise dose delivery with advanced motion management technology could improve outcomes in lung and other types of cancers.

ASTRO was a good meeting for Varian. Our booth was jammed with customers, who were interested in clinical capabilities involving new TrueBeam, imaging and motion management features, and improved motion management interface for our Trilogy accelerator, and the integration of our ARIA information system and Eclipse treatment-planning product. ARIA is now usable with an iPad, an unmatched capability that has attracted tremendous interest from clinicians who are looking for a faster and more efficient clinical workflow.

Our pivotal technology for treating breast cancer also attracted interest from the clinical community at ASTRO. This technology, using a specialized table accessory for positioning patients on their stomachs rather than on their backs in the traditional manner could protect hearts and lungs during treatment. We also exhibited new brachytherapy products with Augmenix gel technology, which we believe has the potential to reduce complications from prostate cancer treatments by temporarily creating more separation between the prostate and the rectum. Based on our evaluation of this technology, Varian has an option to acquire Augmenix and add to our product portfolio for generating recurring revenue.

All in all, our Oncology business is focused on advancing the quality of cancer care in the most cost-efficient manner in every part of the world. We offer a broad product portfolio offering unmatched clinical capabilities, together with the great service.

Before leaving Oncology, I'd like to take a moment to congratulate Dow Wilson on his promotion from president of our Oncology Systems business to Executive Vice President and Chief Operating Officer with responsibility for all of Varian's business segments. And also, Kolleen Kennedy, who's been promoted to President of Oncology Systems, following a very successful 5-year tenure as Vice President and General manager of our fast-growing Oncology service business.

Turning to X-ray Products. Net orders grew 13% to $126 million for the quarter and increased 15% to $483 million for the year. This was another record year for X-ray Products' net orders, with tubes continuing to comprise about 52% of the total net orders for the business. Growth in net orders for X-ray tubes was led by a high-end and mid-tier products for CT scanning as well as replacement tubes for the aftermarket. Net order growth in our flat panel product line was driven by our dental panels. A positive support from niche panel products for veterinarian and industrial imaging applications.

For X-ray Products, fiscal 2011 was a year of stepped-up R&D investment to develop new products and have the potential to drive continued growth in fiscal 2012. We will be displaying several important new products at the RS&A show in Chicago at the end of November. This includes several new X-ray tubes that are designed to operate and film imaging systems for mammography, surgery and other applications. We are also developing several new flat panel image-detection products, including a wireless panel for digital radiography, a large area dynamic panel for our fluoroscopy and cone-beam, CT-imaging and panels for next-generation tomography systems. Customer interest in these new products has been strong. We expect them to continue to contribute to the growth in this segment in the latter half of fiscal 2012.

Switching now to our Other category. We had excellent net orders growth for both our part-Varian Particle Therapy business and our SIP, Security and Inspection Products business. Combined net orders for this category rose by $117 million to $124 million for the quarter including the $88 million order for our ProBeam Proton Therapy System that is now being installed at the new Scripps facility.

For fiscal 2011, net orders in the Other category totaled $201 million, up by roughly the same amount in fiscal 2010 when we reversed the $62 million order for a proton system at Skandionkliniken in Sweden.

We expect to be working on the installation and commissioning of this system into fiscal 2014. We began to recognize revenues for this system during the fourth quarter and Elisha will give you the details on the accounting in a few moments. The Scripps project also includes a 10-year agreement valued at approximately $60 million to operate and service the system.

We also continue to make good progress during the quarter to our booking and additional order for our ProBeam system that has been selected for installation in a planned Proton Therapy Center at the University of Maryland. The Other category also benefited from strong net order growth in our SIP business. Orders during the quarter, came from 3 major original equipment manufacturers who are working on cargo screening and border security installations for both domestic and the international locations.

Before I turn it over to Elisha, I want to call your attention to the publication of our first corporate social responsibility report last week. This report describes our efforts to extend patient access to advanced care, improve clinical outcomes, optimize safety, and make a positive impact on the communities where we operate. The Varian sustainability report also outlines our government structure for this program and summarizes our policies and achievements and goals, while enhancing our performance in these areas. You can access it on our website, and we hope it gives you some useful insights into how we operate.

And so now, here's Elisha.

Elisha W. Finney

Thanks, Tim, and hello, everyone. Before I get started, I want to clarify that I am first going to present the numbers for continuing operations including the Scripps project. I will then break out the impacts of the Scripps project for you. While Tim has already covered net orders, I want to briefly talk about the constant currency growth rates for the quarter, which were impacted by unprecedented volatility in the global foreign exchange market. Oncology, which was most heavily impacted by currency movement, grew net orders in the quarter by 9% in dollars or 5% in constant currency. Oncology to Europeans, net orders growth rate was 10% in dollars and flat in constant currency. The Far East was up 30% in dollars and 24% in constant currency. And net order growth in the rest of the world was 64% in dollars and 54% in constant currency. .

Fourth quarter revenues for the company increased 10% to $719 million with constant currency growth of 7%. Oncology Systems posted a 7% increase in revenues, X-ray Products posted a gain of 11% and total revenues from businesses under the Other category increased by $18 million or 53% with declines in the SIP business more than offset by the Scripps Proton Therapy project.

For the full fiscal year, total company's revenues were up 10% in dollars and 8% in constant currency. The fourth quarter gross margin for the company fell by a little more than 0.5 point to 42%. Oncology Systems gross margin increased by more than 1.5 points to 45% due primarily to higher TrueBeam mix, improved installation and warranty costs.

X-ray Products gross margin was about even with the year-ago quarter at 41% as pricing pressure and panel products was offset by higher volumes and improved quality cost for tube products. For the full fiscal year including the Scripps project, the total company gross margin was up about 0.25 point to 43.7%.

Fourth quarter SG&A expenses were $97 million or 13% of revenues even as a percentage of revenue with the year-ago quarter. Fourth quarter R&D expenses were $44 million or 6% of revenues, also even as a percentage of revenue with the year-ago quarter.

For the fiscal year, on a combined basis, operating expenses were up about 25 basis points to 21% of revenue.

Moving down the income statement, fourth quarter operating earnings were up 7% to $160 million or 22% of revenue. For the fiscal year, operating earnings were up 10% to $588 million or 23% of revenues even with the prior year as a percentage of revenue. Depreciation and amortization totaled $14 million for the quarter. The effects of tax rate was 30.9% for the quarter, up almost 2 points from the year-ago quarter, due largely to the geographic mix of earnings. For the fiscal year, the effective tax rate was 30.6%, down about 0.5 point from the prior year.

Fully diluted shares outstanding decreased significantly from the year-ago quarter to $116 million due largely to our ongoing share repurchases. Diluted EPS rose 9% to $0.95 for the quarter and rose 16% to $3.44 for the year.

Now, before turning to the balance sheet, let me summarize the impacts of the Scripps Proton Therapy project for the fourth quarter and fiscal year. We are recognizing revenue under contract accounting rules using the percentage of completion method. Under this method, revenues are initially recognized equal to cost with the expectation that profits would be recognized towards the end of the project. The $33 million of revenue recognized in the fourth quarter reflects our progress to date. Because the proton revenue was recorded at 0 profit, the fourth quarter gross margin for the total company was diluted by 2 percentage points and the EBIT margin was diluted by one percentage point.

Now, turning to the balance sheet. We ended the quarter with cash and cash equivalents of $564 million, debt of $198 million and stockholder equity of $1.2 billion. Our 2011, balance sheet now reflects our initial funding of our recently announced $115 million debt facility for the Scripps Proton Center. We recorded a $19.2 million short-term investment under current assets. DSO improved by 2 days from the year-ago quarter to 80. Fourth quarter cash inflow from operations was $146 million and short-term borrowing for the quarter was $181 million. The primary use of cash was $267 million for the stock repurchase program. We have approximately 7.4 million shares remaining under the repurchase authorization in effect for the fiscal year 2012.

Now, I'll turn it back over to Tim for the outline.

Timothy E. Guertin

Thanks, Elisha. While we believe Varian is positioned for continued growth, with the wide array of new products capable of cost-efficient, advanced medical treatments in X-ray imagining. Furthermore, we have established a global presence including -- in important emerging markets, and we continue to see good potential in our Particle Therapy and Security and Inspection Businesses. For fiscal year 2012, including the Calypso acquisition, we believe that revenues could increase by 10% to 11% over fiscal 2011 totals and net-net earnings per diluted share from continuing operations could rise in the mid-teens to a range of $3.92 to $4.02.

For the first quarter of fiscal year 2012, total company revenues could increase by about 8% to 9% over the prior year.

In addition to the cost related to the Calypso acquisition, we expect that the first quarter net earnings will be affected by a substantially higher tax rate versus the year-ago quarter and a loss from our equity investment in dpiX related to the closure of the out-of-date panel manufacturing facility in Palo Alto. As a result, we believe net earnings per diluted share from continuing operations in the first quarter will be in the range of $0.74 to $0.75.

So now we're ready for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes the line of Amit Bhalla with Citi.

Amit Bhalla - Citigroup Inc, Research Division

I wanted to start just with the revenues in the quarter. And if I remember back to fiscal 4Q '10, the Oncology business missed in that period also. There was a number of delivery push outs, install time issues, et cetera. And this quarter, Oncology Systems revenue also fell short of our expectation and consensus. Can you just walk through what happened in Oncology?

Elisha W. Finney

Sure. Let me start, Amit, by saying that Oncology was within spitting distance of our expectation. So the impact was really from our other businesses and so I'm happy to walk you through that. The revenue in deposits came from some slightly different places than we had first expected. SIP and X-ray Products were down on a combined basis somewhere between $12 million and $13 million in the quarter. And as you know, X-ray Products, we had the issue in Japan, which impacted us somewhat, and most of this coming from SIP, which is just a very lumpy business and where we had push-outs in the quarter. Good news is that the SIP sales target for FY '12 looks very strong so we will make those up as we move into next year. At the proton business, we had built in some proton revenue and let me just say that, that SIP and X-ray revenue was at about a 40% margin. So that was down and in return, we had higher-than-expected Proton Therapy revenue in the quarter and that's at a 0% margin. So as you know, that was not exactly a fair trade, if you will, on the top line. Fortunately, the -- as I mentioned, oncology was within spitting distance of what we were expecting. But we did have some territorial mix that impacted it. We had unprecedented quarter-over-quarter changed in FX rates and so as we sat down and looked at revenue around the globe, when you converted that into dollar, depending on where that revenue came from, you could get very different results. So I'm actually quite proud that we got -- that within -- that we hit the 10% number and that the Oncology gross margin made up a lot of difference because it came in significantly higher than what we were expecting. And then the last thing I would add in terms of the Q4 that was a little odd is, because of the intra-quarter wild fluctuations in FX, we had a $2 million hedging loss that flowed through SG&A from just doing our balance sheet hedges. That is fairly unprecedented, we tend to be closer to maybe $0.5 million up or down and had $2 million in the quarter from those FX losses. So that's really kind of where the changes were from what we initially expected.

Amit Bhalla - Citigroup Inc, Research Division

So just to follow up there. For Oncology, so there wasn't any issues with install timer push outs? And then secondly, can you just -- Tim, you said that linear accelerators were up worldwide, were they up in North America?

Elisha W. Finney

We were trying -- I'm trying to think back if we were talking about orders or sales when we were talking about the units.

Timothy E. Guertin

I think we were talking about orders. We were talking about orders, yes.

Elisha W. Finney

I think we were talking about orders. So the global order units were up. And then the U.S., yes, the units placements would have been up, I mean we saw, again, we saw 10% growth in sales for North America, so that was quite healthy.

Amit Bhalla - Citigroup Inc, Research Division

And I just want to ask you a quick guidance question or just to understand what's implied inside these -- in the numbers. In fiscal 2012, if I assume that there is roughly like $44 million of Calypso and Proton revenue that adds about 200 basis points to the number, to guidance. Can you tell me how much you're assuming in your guidance? And also for fiscal 4Q, how much Calypso was in the Oncology order book?

Elisha W. Finney

There was -- in the fourth quarter, there was nothing. That was an acquisition that was made subsequent to quarter end. I would just tell you that Calypso had annualized sales of somewhere around $15 million. We do believe that Calypso can help our orders -- topline orders, next year by about a point or so. You're going to get some lag on that, turning into revenue growth because again, we tend to -- our expectation is we will bundle most of these with the oncology sale and they'll be in backlog for about 12 to 15 months. So we feel very good about the orders for Calypso moving into FY '12, most of the revenue bumps won't come until FY '13. In terms of protons, that's a -- boy, it's a tough one. Unfortunately, it's not going to move the EPS number, but it can make your margins look very strange. We are expecting somewhere close to $20 million additional revenue for the Scripps project in FY '12 and I would give that a fairly high probability, just given that we are already delivering under that contract. There could be additional revenue, as high as a total of $50 million, if we were to get another order depending on when that comes in the year and how much of the percentage of completion we have completed by that time. So again, that's why we're putting a range around this, but the Proton business is going to put some volatility in that number.

Amit Bhalla - Citigroup Inc, Research Division

Okay. So you're 8% to 9% -- I'm sorry, your 9% to 11% revenue growth is -- includes about 200 basis points from those 2 issues?

Elisha W. Finney

Yes, it includes about $20 million of Proton revenue that again, we're pretty confident of, and you can assume somewhere around another $25 million or so that we're just estimating, could be potential revenue with if and when we book an additional order.

Timothy E. Guertin

But I think in terms of -- the point that we should make is in terms of guidance on EPS, Calypso loses money next year, the Proton business that we're booking makes no profit, so we're making that increase in our EPS through organic measures and...

Elisha W. Finney

Margin improvement.

Timothy E. Guertin

Margin improvements and so that I think that -- I think we have, what, $0.05 of...

Elisha W. Finney

$0.05 to $0.06 for Calypso and it's a little loaded more in the first half than the second because we have some transaction costs and severance and those were for paying in Q1. And then some people will be transitioning off in the consultants and whatnot.

Operator

And your next question comes the line of David Lewis from Morgan Stanley.

David R. Lewis - Morgan Stanley, Research Division

Just a couple of quick questions. First, Elisha, just -- you talked about the gross margin impact from the Proton order. I espied just for the gross margins for the Proton order, I actually get stronger GM's than I guess we were expecting. I wonder if you could kind of walk us through some of the dynamics that may have attributed to stronger underlying gross margin trends, whether it was easing some retrofit issues from last quarter or a TrueBeam?

Elisha W. Finney

No, it was largely driven by TrueBeam. We -- our Oncology had a very strong margin, 45% in the quarter, it was up 167 basis points quarter-over-quarter, largely driven by higher percentage of TrueBeam at a higher margin and some improved installation and warranty costs as we continue to get faster on the -- on these installations. The X-ray Products margin, as I mentioned, was roughly even with the year-ago quarter. We're seeing a little bit of pricing pressure with the RAD panels and some mix between tubes and panels tend to drive that margin as well. So really, the total impact of the gross margin came from bookings, $33 million of revenue at a 0 margin. If you were to strip out Scripps, the total company gross margin would would've been up 140 basis points quarter-over-quarter. So a very good margin performance.

David R. Lewis - Morgan Stanley, Research Division

Great, very helpful. And then maybe, Elisha, one more question on fiscal '12 guidance. Can you just give us a sense in terms of your service business, which has been kind of a powerful driver of growth. How you expect that service business to perform in fiscal '12 versus fiscal '11?

Elisha W. Finney

Yes, it had done very, very well. The -- I'm not going to sit here and say that level of performance is going to continue indefinitely, but I think we will definitely see double-digit performance in the service business. Somewhere around the 10% to 12% range.

Operator

Your next question comes the line of David Roman with Goldman Sachs.

David H. Roman - Goldman Sachs Group Inc., Research Division

I wanted to see if we could -- just pick back up on Calypso a little bit and I just have a couple -- one logistical question, can you just remind us where the amortization gets booked through to the P&L? And of the $0.05 to $0.06, how much of that is really noncash versus cash expense. Then a follow-up to that would be just as it relates to Calypso specifically, what are sort of the clinical milestones or data points we should be watching out for over the next call it, 6 to 12 months just to sort of track the progress of that technology?

Timothy E. Guertin

I'll start with the non-numerics stuff. Basically, the Calypso folks have introduced some data for prostate that -- and so we're going to be talking to a lot of people in the United States about adding Calypso into their prostate programs. So you -- there's no big events there, it's just a continued activity on our part. For lung, Calypso is trying to get approval for a lung marker and of course, as you can tell from the presentation I made today and other presentations, we think that both operable and inoperable lung cancer can benefit from more radiation therapy treatment and -- but the trick with lung is you have to hit the target. And for especially prosteric types of treatment, it's important that, that be extremely accurate. So we're hoping that the Calypso device will get approved by the FDA. Obviously, they're in trials to do that. I'm not going to predict the date today because that's up to things that are beyond my control. But I would hope that maybe 6 months from now I can give you much a better insight into when that approval would be expected. But I think Elisha's remarks earlier are very important to us. Calypso -- we didn't invest in Calypso because we think it's going to have a huge and positive impact on us in 2012. In fact, we expected to lose $0.05 or $0.06 for us in 2012. Calypso is an investment for the sake of 2013 and 2014. That's when I hope to have more FDA approvals, that's when I expect the business that we got this year for prostate starts to be delivered in terms of sales. So now I'll now turn it over to Elisha to comment on the financial stuff.

Elisha W. Finney

Great. David, so of that $0.05 to $0.06, most of that is cash-related, the -- we are not finalized on the purchase price allocation as of yet, but I am estimating at this point, the amortization will be about $0.01. That will flow through the SG&A, and that is included in that $0.05 to $0.06. So most of that is -- obviously, we had some legal and accounting and things to close the transaction, we had some severance, we are actually taking the Calypso operating losses that they've had over the last year and cutting that in half. So we are making progress, but we are continuing to invest quite heavily, particularly in the regulatory area so that we can get this FDA clearance that Tim mentioned.

David H. Roman - Goldman Sachs Group Inc., Research Division

Okay, and then just on -- more on the target SG&A and the P&L. Maybe just give us some sense as to directionally what's happening with discretionary spending. Operating margins that I think we're kind of roughly flat in 2011 and you had talked to that kind of some lost quotas -- I think you call them austerity measures that had pulled back spending in fiscal '10 some of which returned in fiscal '11. Maybe you should just give us a sense that we're back on the trajectory that sort of annual 50 basis point of operating margin expansion that you had previously targeted?

Elisha W. Finney

Sure. I think for fiscal year '12, once you go through your model, you'll see that we are modeling out again somewhere around 23% or so of the EBIT margin. That is including the dilutive effects of Calypso, that is including the shutdown of the dpiX manufacturing facility, the Proton revenue, so it's a little hard to compare apples to apples, but in terms to answer your question, I would say we are still cautious on spending, we are not out like drunken sailors by any stretch of the imagination, but we do plan to get salary increases in equity brands and all of the normal things that we do year-over-year.

Operator

And your next question comes the line of Vivian Cervantes with Kaufman Brothers.

Vivian Cervantes - Kaufman Bros., L.P., Research Division

I wanted to focus a little bit on some a qualitative-type questions. The TrueBeam order rate is growing nicely and I try and balance that against your revenue guidance of plus 10%, plus 9% to plus 11%, and it looks like acquisition and Scripps adds roughly, by my calculation, roughly 100 basis points or so. Does this mean that you've got an extra 100 basis points coming from just good order flow and turning that order into revenue?

Timothy E. Guertin

Well, we did have significant orders and increasing backlog. And we also, as Elisha said, we had some business that moved from quarter 4 into next year, which gives us a little extra tailwind which is nice to see. So all of those things have an effect. And I'm going to say about TrueBeam, the bulk of our TrueBeam business has been in North America. True -- if we start -- we're to see more pick up in TrueBeam internationally, and if we start to get a lot of TrueBeam international orders, then I think that, that's just hugely positive for us. So some of that obviously, is built into 2012, but I think the European and Asian story for TrueBeam is really going to help us in 2013 -- in 2014. I think when we introduced TrueBeam, I told everybody that it would take 2 years for that to hit the international markets, that it would first hit the U.S. market, because people set those budgets a long time in advance, internationally. And so I think that, that's proven to be the case. I was just at a meeting of users of scientific meeting of our users in Berlin and there are a lot of presentations about TrueBeam and a tremendous amount of optimism about the product. Not just from physicians and physicists but also from operators. I mentioned at ASTRO that I had met with our customer who went on and on about how much they love TrueBeam and it's really nice to hear. So I think all in all, it's a product that's going to give us a lot of strength. So we'll see orders strength into TrueBeam in 2012 and some of our uplift in terms of revenue is from that. And -- but I think our real potential -- and Oncology, did nearly, what, 45% margin in the fourth quarter. I mean, this is incredible what TrueBeam has done for us. So I think we're going to see that manifest even more strongly in the future because I think we can bring up our European and Asian margins as well.

Vivian Cervantes - Kaufman Bros., L.P., Research Division

That's helpful. So it sounds to me like are signals are go in terms of placing the TrueBeam systems, you're not seeing any delays in the places, such that you're able to recognize that net order into revenue in fiscal '12 without hang-ups?

Timothy E. Guertin

No, we, we're not -- there's nothing deferred, we're installing them quickly, our install times have come down very nicely, what, 3 or 4 weeks now, for 4 weeks for install times. And so I'm just -- we've hit the ground running.

Elisha W. Finney

We have now installed close to 150 TrueBeams so we've gone through a lot of learning doing all of that.

Vivian Cervantes - Kaufman Bros., L.P., Research Division

That's helpful. Shifting gears to x-rays. I appreciate the comments made on the new mammography system that's to be featured at RSA. Can you just sort of help us understand why this would be differentiated and why customers will want to look at this, particularly given the current base right now of selenium system?

Timothy E. Guertin

Well, the selenium systems are very delicate and they have lifetime problems, they produce very good pictures, but they are not as reliable as amorphous silicon and so -- but people have preferred them because of image quality. What's happening now is that we've been able to make amorphous silicon products and then -- and the new generations of coatings performed so well and gets such high resolution that those panels are producing images good enough to use in these kinds of mammography systems. So I'm not saying we're going to get 100% market share and all that and far from it, but I am saying we're going to start to see some penetration of these kinds of panels which are cheaper to make, and more reliable and easier to ship into more and more mammography systems over time, so we're happy to see it.

Vivian Cervantes - Kaufman Bros., L.P., Research Division

Okay, so it doesn't sound like customers who are entrenched in the current amorphous system have to make big changes into how they're producing the materials they use. You're essentially giving the same product, but a better product?

Timothy E. Guertin

That's what we believe and so what we want to do now is -- obviously, we want to try to woo those people into offering this as maybe as an option on their product. So that they don't all have to deliver amorphous selenium, they have an option that they can deliver to customers. But that's what Mr. Kluge has to do starting at RS&A is try to talk more people into doing that. And of course we already have been in contact with a lot of people who've seen the stuff that we do and people are incorporating our new mammography panel in their products. But I think 2012 is a year in which we're going to try to persuade a lot of people to consider this technology instead of what they already use.

Operator

And your next question comes the line of Dalton Chandler with Needham & Company.

Dalton L. Chandler - Needham & Company, LLC, Research Division

I apologize if you gave this, but did you give the tax rate that underlies your EPS guidance?

Elisha W. Finney

For fiscal year '12?

Dalton L. Chandler - Needham & Company, LLC, Research Division

Right.

Elisha W. Finney

Yes. It will be about 31%, Dalton.

Dalton L. Chandler - Needham & Company, LLC, Research Division

Okay, and what about the share count?

Elisha W. Finney

We haven't guided to share count and obviously, fully diluted shares depend largely on what's going on with the stock price as well. I think you should assume that once this stock repurchase program that we are in, that we will have some ongoing share repurchases as we've done over the last several years. And then just building your stock price assumptions we ended the quarter -- we ended Q4 within 116 million shares outstanding, I believe.

Dalton L. Chandler - Needham & Company, LLC, Research Division

Then just shifting to R&D, you did mention you had a pretty good bump in the year as you're working on some new products. Should we expect that to moderate going forward? Could it even come back down a little bit? Or what -- how would you model it?

Timothy E. Guertin

No I'm -- I love R&D. So we will probably grow it as fast as we grow sales and maybe a little bit faster.

Operator

And your next question comes from Anthony Petrone from Jefferies.

Anthony Petrone - Jefferies & Company, Inc., Research Division

Just going to start with Calypso. Just a couple there, Calypso had 110 installed base units, I'm just wondering if any of those were already Varian -- had Varian equipment on the 1x side. If they did not, how long would that transition take? And then on the earn outs for Calypso, I'm just wondering what is the actual trigger for these earn outs and what is the timetable?

Elisha W. Finney

It's a 2-year earn out and the trigger is they have to exceed as of the expected units, and we haven't disclosed what those units are. But once they exceed what we expect on the installs going forward for the next 2 years then there's additional money.

Timothy E. Guertin

In terms of the rest -- first part of your question, I don't think I have that number, but I believe -- looking around the room at the people who're sitting here with me that it's going to be probably consistent with our normal share in North America, which is about 70% of units. So I would expect that, that's the number and we don't have any reason to believe it's lower or higher than that number.

Anthony Petrone - Jefferies & Company, Inc., Research Division

Great. And then Elisha, last quarter you mentioned freestanding clinics had a little bit of a tough time on the credit side of things, getting access to credit. Although, today in Europe was a good announcement. Markets were up, and that's great. But did you notice that was an issue this quarter? And if indeed it is an issue, will the company consider using its balance sheet on the freestanding clinics side for systems and upgrades somewhat to how it's using it for the proton business?

Elisha W. Finney

Well, it really -- let me just say, it didn't circle up to my desk as being a big issue in the past quarter. And I've got financing folks on staff to go out and facilitate this financing, and it's been business as usual. So I don't think there's anything particular going on in the freestanding side right now. We have used our balance sheet on the proton business, and we used a good piece of it and we would always consider doing something for other segments, but at this point, it just has not been applied.

Timothy E. Guertin

They haven't asked us to, so Elisha hasn't had to be a drunken sailor yet in terms of doing that. So I think that's going to be okay. We have seen some nice activity on the part of freestandings in North America in the fourth quarter, so I think that they're getting access to money.

Anthony Petrone - Jefferies & Company, Inc., Research Division

Two last ones for me, quick ones. One, just a housekeeping one on the balance sheet, $180 million in short-term borrowings. Is that just related to Scripps or...

Elisha W. Finney

No, no, no. That was related to our revolving line of credit that we drew down to do our accelerated share repurchase program.

Timothy E. Guertin

Now Scripps is...

Elisha W. Finney

We are in the process of paying that down.

Timothy E. Guertin

What you have to realize is we built a lot of the inventory for Scripps. So loaning the money is, to some extent, using cash we've already spent.

Anthony Petrone - Jefferies & Company, Inc., Research Division

Okay. And then, Tim, maybe the last one, just a general comment on reimbursement. We're approaching November. Just any of your thoughts heading into November on reimbursement for next year.

Timothy E. Guertin

We are -- well, to remind everybody on reimbursement, for hospital-based reimbursement, we are expecting about 1.5% for -- not counting -- let me -- I'll give you the answer and then I'll fix it. 1.5% for freestandings. The number varies, but it's around 6%, 7% negative win, which was anticipated. If the super committee does not come back, the super Congress does not come up with an answer, there will be a 2% on top of that, which won't affect hospitals at all. I mean, well, it will affect them, but I don't think it will affect their behavior. That will be harder, I think, on freestandings, and of course, we don't know what the super Congress is going to do. I guess November 26 is the deadline for a proposal, so we have not -- we don't know there. We'll see the final numbers next week, but we have no reason to believe that the numbers are going to be any different than those numbers.

Elisha W. Finney

Anthony, let me come back to one thing you said. I just want to make sure that we don't mislead on your question regarding the debt facility. We have committed $115 million to this facility. We have only funded at this point $19 million, which is new on our balance sheet, and this will be drawn down over a period of time. So a small portion has been funded for the centers to date.

Anthony Petrone - Jefferies & Company, Inc., Research Division

Okay. And then again, that 6%, 7% is not including what potentially could come from the super committee vote?

Timothy E. Guertin

That's correct. It could be -- for freestandings, they could be affected more. But this is -- they've all taken this into account. There's nothing here that they haven't known about for 3 or 4 months, and their behavior's still been good. And you have to remember, we have done a tremendous job in the last few years at driving cost out of what it takes to do radiation therapy when you use our equipment. It is true that if you use our competitor's equipment, if I do say so myself, you don't get the throughput that you get with our stuff. But in treatment planning and in delivery, we give people very good performance and that's why they prefer us. And so I think that everybody expects the pricing to go down, the payments to go down in radiation therapy. And I think one of the reasons why they like what we're doing is because we've shown them how you can use our stuff to get your cost out. And I think we can -- so I believe we can stay ahead of the curve.

Operator

And your next question comes from the line of Jeff Johnson with Robert W. Baird.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

I've been jumping between calls here, so forgive me if I repeat a question here that you've already had. But Elisha, I want to look at guidance here for a second. The $0.05 to $0.06 Calypso dilution that you're talking about, how much of that is being offset? Can you just remind me by the increased interest income from the loan to Scripps?

Elisha W. Finney

Well, again, only $19 million has been funded. As you know, it's an 8.25% currently, and that will be drawn down anywhere from $1 million to $3 million per month by the end of the year, somewhere around maybe $35 million to $40 million will be funded. Also, that has to be offset that we are borrowing more to, under our revolver, to do our share repurchase program.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Okay. So let me ask it this way, and I'll walk through all that math offline I guess. But is the Scripps funding expected to add a few pennies or not as much as the $0.05 to $0.06 dilution on Calypso?

Elisha W. Finney

It would take an average of maybe $25 million outstanding in 8.25% and that's your number. That's it.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Yes. No, that's helpful. So then as I think about the rest of your guidance, it's the first quarter guidance that I'm still confused by the $0.74 to $0.75. How much of the dpiX closure, how much of that is going to cost to EPS?

Elisha W. Finney

Sure. Let me kind of walk you through the first quarter of '12, which I understand on the surface looks a little confusing. The problem with the near-perfect quarter is you always have to anniversary it the following year, and that's exactly what happened in the year-ago quarter. Virtually every single metric moved in the right direction. So if you look back into Q1 of last year, earnings per share were up 27%. So in this first quarter, again, you can see sales will be somewhere around 8% to 9% growth. We have $0.04 to $0.05 dilution from both Calypso, which is roughly $0.02 and then roughly $0.03 from the shutdown of dpiX. And that's a onetime charge, and that will all hit in the first quarter. If you look in the year-ago quarter, oncology had an unsustainably high gross margin at 47%, and we are now modeling that will be closer to the 45%, which is still very strong but will not be at the year-ago level. And then in the year-ago quarter, we also had that reinstatement of the R&D tax credit, which drove the tax rate down to 29% versus 33% or so in this Q1. And that's about a $0.04 delta right there just on the tax rate.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Okay. And that 33% Q1 tax rate, you're still, I think I caught before I jumped to another call, 31% for fiscal '12 is what you're still guiding to though?

Elisha W. Finney

Correct.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

So a lot of what we lose in Q1 just kind of gates into probably higher estimates on street numbers in the back half of the year?

Elisha W. Finney

Yes. And I would just focus on for the full year and admittedly, $0.10 is a relatively big spread. It's early. The FX rates have been all over the board, and so we've put a slightly broader range on that. But if you take the midpoint, it'll put you at mid-teens growth year-over-year.

Timothy E. Guertin

I think altogether, next year looks pretty good. It just doesn't look so good in the first quarter. And a lot of things have just happened coincidentally in one quarter, and that's what we're trying to explain.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Yes. No, understood, Tim, and I guess what I was trying to feel out is it almost looks like Q2 through Q4 next year you're guiding to 20% plus EPS growth.

Timothy E. Guertin

Well, we'll get to that guidance when we get to it by quarter. But for the year, we still think this looks pretty good.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Yes. And another one I'm sure you won't bite on, Tim, but I'm going to ask anyway. I mean, just kind of your overall outlook on orders for next year. Maybe just qualitatively you're up international and U.S.?

Timothy E. Guertin

Well, obviously, I'm feeling better about Europe today than I was yesterday, so that's good news. I'm feeling good about that. In terms of North America, obviously, there's still turmoil. I want to see our Medicare reimbursement rates come out. But yet, even if -- I don't -- I just can't contemplate that thing getting much worse in the 2% that people were talking about, which I think is kind of a no op for the radiation/oncology business. So I would -- I'm not particularly worried at that point. It's more of a long-term consideration for the North American market. In Asia, we'll now have thoroughly graduated from Japan. And so I think that we have some opportunities there. We're showing share growth in China, and we're very strong in Japan and other parts of Asia and the rest of the world. You saw the rest of the world numbers for this quarter. So I'm kind of bullish on international overall. But for Europe, I think a lot depends on what that currency number does for us. And I want to say while I got you on the line. We started this year giving a range of guidance of I think $3.34 to $3.39. We came in at $3.44. So although the fourth quarter we were disappointed by some slipouts that happened, not in oncology and not in -- well, but happened in X-ray and Security, we nonetheless did well. And so I bet just -- and some of that business has slid into 2012 and gives me optimism for 2012. So I would have to say overall, I'm more bullish now than I was even a week ago about next year.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

All right. That's encouraging. And yes, I guess just last, let me just follow up one more. I thought I was done there. But if I look 2 years ago, your North -- your orders on a constant currency basis were much softer in North America, much stronger international. This past year now in fiscal '11, as I update my model, is pretty evenly balanced. You think when we get through 2012, you think we're going to look more like 2010 or 2011? Are they more balanced there in '12, or will one geographic area outpace the others?

Timothy E. Guertin

I guess my view is that North America -- in the past I've seen North America slow down and then eventually you just get a return. They just come back because they just have to buy. I don't think -- I'm not expecting a strong return in 2012 necessarily, but I am starting to see signs that people are starting to buy in North America as we emerge from this. So that leaves me to believe in the long run, we're going to see greater North American strength than we've seen for a while at some point here. I can't tell you exactly when, but some time in 2012, 2013, we're going to see more strength in North America. Is it going to be more balanced? Well, it's like I say, there are 310 million people in North America and 6.5 billion people outside of North America. Ultimately, we're just going to have to grow faster outside of North America than we do inside. But the nice thing is that if we can develop products for those markets and if we can get nice products like TrueBeam to be well accepted in those markets, then we can increase not only our share but we can increase our gross margin in our international businesses. So in the long run, I'm very bullish about international, and I'm very bullish that we can increase our profitability from our international business.

Operator

And your next question comes from the line of Junaid Husain with Ticondorega Securities.

Junaid Husain - Ticonderoga Securities LLC, Research Division

Elisha, just a quick question for you on collections and bad debt in Europe just given the situation, which, again, hopefully is improving after today. What's your DSOs look like in Europe? How does this compare to U.S. and then how does it compare to a year ago?

Elisha W. Finney

Well, it's -- I don't have an exact number for you, Junaid, but it is higher in international markets than in the U.S. We feel like we have adequate reserves on the books for whatever we might be experiencing in Spain or Portugal, et cetera. So I don't anticipate that there's going to be any real surprises coming out of there. We do have a few hemo plans in certain countries that we're executing on. And DSO, we have, if you average the last 4 quarters we've been right at 80 and yet again this quarter, we're right at 80. So I would say it's just kind of business as usual.

Junaid Husain - Ticonderoga Securities LLC, Research Division

Got it. And then, again, in Europe, your competitor over there can be, call it, fairly aggressive on the pricing side. Just, again, given the more macro issue going on in Europe, how has this impacted pricing?

Timothy E. Guertin

As we started to introduce new products in Europe, I think our pricing has done reasonably well. I have to say I think our competitors are pursuing an M&A strategy, and we've been pursuing an organic growth strategy and these are different strategies for growth. Both of them have their merits, but I think it has enabled us to hold our pricing better than you might otherwise think.

Junaid Husain - Ticonderoga Securities LLC, Research Division

And that's actually a good segue to your acquisition of Calypso. Tim, could you help us understand how this plays into other motion management strategies that you've been looking at, for example, Vision RT? Would you -- after Calypso, would you think of perhaps moving away from Vision RT? Or alternatively, would you even consider something more strategic similar to your deal with Calypso?

Timothy E. Guertin

Well, motion management is one of those things where there are a lot of different ways to do the problem, to solve the problem. And to some extent, I guess you might say -- I don't know if you ever played roulette. We talked about drunken sailors earlier, so I'm going to use a gambling example. If you're playing roulette and you bet on 0 and double 0 and all the numbers, you stand a greater chance of winning. So in a way, we're betting on all the numbers here. We -- one way to know whether or not you're positioned properly is to use what I call active markers, and that's what Calypso makes. And active markers are nice because they -- the Calypso marker has -- you don't have to use ionizing radiation, it tells you where it is. Some people are going to prefer imaging. And of the people who prefer imaging, some of them are going to want to use what I call passive markers, which means gold seeds. They don't do anything except they're visible under radiation, and some want to use no markers at all. And we really don't know -- if you talk to one customer, you talk to one customer about how they prefer to solve this problem. We're going to provide an answer for the people who want to use no marker, we're going to provide an answer for the people who want to use passive markers and we're going to use -- we're going to provide an answer for people who want to use the Calypso markers. In lung, think about lung, because lung is very important to us going forward, but also liver. In lung and liver, if you want to do stereotactic treatments, it's a little different. In the lung, some lesions are visible when you treat them in the lung. So you can use regular imaging methods and maybe no fiducials inside the lung for visual -- for visible tumors. For other kinds of tumors that are hard to see and hard to distinguish between the background, then a marker might be very good. And the nice thing about the Calypso marker is you don't have to use extra x-ray to do imaging during that period. For liver, you can't see tumors at all in the liver with traditional imaging methods. And so Calypso could be very useful inside the liver, but also passive markers would be useful. So we don't know how this is going to play, but we do know that a lot of people love the Calypso product. Obviously, we didn't buy it without talking to users, and a lot of users are very bullish about it. But this is going to be -- it's not a one-size-fits-all market in terms of how this will be solved.

Junaid Husain - Ticonderoga Securities LLC, Research Division

Got it. I like the drunken gamblers analogy. Tim, we're about a month away from RSNA. I know that's Bob Kluge's time to shine versus the larger oncology business. I know that you've all already renewed with one of your larger OEMs for the year on the X-ray business. But as we head into RSNA and with new products coming, could you give us a sense for this meeting and it's magnitude to the X-ray business and perhaps signing up some other larger OEM customers?

Timothy E. Guertin

Well, this is where Bob gets to show his new stuff, and he will be showing lots of new products. And obviously, a lot of his customers already sort of had guessed or know what we're coming up with and what we're going to show at RSNA, but we can show a broader variety of things. So for him, RSNA is an important show. He's way more busy. All of the oncology people -- we talk to people who come in from the Chicago area and from the Midwest, but otherwise, that's just not a big oncology show. But there's a tremendous number of customer meetings that goes on for Bob Kluge that -- where we get to meet important customers that are major buyers from us. So it's a huge show for Bob Kluge.

Operator

And your next question comes from the line of Tycho Peterson with JPMorgan.

Tycho W Peterson - JP Morgan Chase & Co, Research Division

First question. Tim, appreciate the color you've provided on reimbursement before. Just wondering if you can comment on the dynamics of the private payers? There's obviously been some noise there with Blue Cross Blue Shield in Massachusetts. And just wondering what you're hearing from customers about pushback from the private payers? And is your view that this ultimately doesn't impact demand on the freestanding side?

Timothy E. Guertin

Yes, we've heard things like New England Blue Cross has been limiting IMRT to prostate, which is strange because we're head and neck -- you'd be crazy not to do IMRT for head and neck patients because you're going to experience tremendous cost. So we've seen insurers do nuts things before and obviously, we're going to still see insurers do crazy things. We've seen some Western insurers blocking prostate SPRT, and we've seen insurers blocking IMRT for breast. IMRT for breast is probably not going to be well paid for except in certain kinds of cases, and there's a difference between left breast and the right breast for treatment. So it's hard to say where that's going to go. We've seen clinicians successfully challenge nonsensical denials, and I think we will continue to be and we're investigating. We're putting money into clinical trials to provide more clinical evidence. But I don't know what I can tell you. Obviously, some insurers are going to ignore the facts. But if you have relatives that live in New England and they don't get IMRT when they have head and neck cancers treated, then they ought to do something nasty to their insurer.

Tycho W Peterson - JP Morgan Chase & Co, Research Division

And then you mentioned the clinical trials. I mean, to what degree do you feel a need to get a cost of that versus just coordinating? And obviously, we've seen some papers come out of the SPRT release at ASTRO. So how much are you able to quantify what you're spending on coordinating these trials?

Timothy E. Guertin

Well, we spend a lot of money every year on research that's done by customers. Now what we spend is small, I think, compared to the total amount of clinical trial stuff. A lot of what we spend is additional money to help facilitators speed up the course of a clinical trial. But in the end, the critical trials that most people like best are the ones that the manufacturer doesn't support. They're paid for by the large investigative bodies like RTOG. But we're participating, and for example, lung data. We want to get lung data and we want to get it more quickly. So we're going to participate to the extent that we can speed up the accrual of patients because that's something we would really like to see. So if we can pay for a better status, more statisticians or easier assembly of data, et cetera, that's good. Also, sometimes, we want them to use a technology that's uniquely ours in a clinical trial. And so if you have a general-purpose clinical trial and only one vendor has a particular technical solution, then probably you're going to want to see some money from us to support that effort.

Tycho W Peterson - JP Morgan Chase & Co, Research Division

Okay. And then on Calypso and now that the business is in your fold, any thoughts on the pricing structure there? I mean, the system's a couple hundred thousand dollars. Does that make sense going forward? Or do you feel a need to maybe adjust the pricing and further integrate the device itself into the Linacs?

Timothy E. Guertin

Well, the Calypso had a pricing level that was based upon its volume. What we hope to do over time is increase the volume and get some advantages that we can offer in terms of pricing because we get scale. But right now, the scale isn't there yet, so we're going to have to be very careful in what we do in terms of pricing. And obviously, we're going to spend some money on cost reduction activities to see what we can do. Any technology like this, the more inexpensive we can make it, the better. But this remains a very exotic device right now.

Tycho W Peterson - JP Morgan Chase & Co, Research Division

Okay. And then one of the competitive dynamics we tend to get is as we think about the dynamics here in the U.S., in particular around the Tomo-Accuray merger, how do you view the opportunity to go after some of those vaults and importantly, bringing UNIQUE to some of those customers to some of those low-energy vaults?

Timothy E. Guertin

Well, TomoTherapy vaults, yes, people pull them out. Some people have decided not to put them -- I mean, they're putting TrueBeams in some of those things and some of them are putting 600 CEs in there. UNIQUE is a potential opportunity for some of those sites, and I have seen people express an interest in doing that sort of thing. So the only places, I think, where we -- maybe something special would be required that like UNIQUE would be extremely small vaults, in North America, that's not really a big opportunity. There are small vaults in North America, but most of those small vaults are outside of North America.

Tycho W Peterson - JP Morgan Chase & Co, Research Division

Okay. And then last one on capital deployment. I think your Analyst Day back in May you'd kind of talked about ballpark $300 million to $400 million-type deals. Obviously, Calypso's much smaller. So can you just talk to the extent you're still looking at M&A?

Timothy E. Guertin

Yes, I think I said $300 million in aggregate over several years, right? I don't want to scare the heck out of everybody else on the thing. Calypso is small. We're still looking at a number of opportunities. I think ultimately, Augmenix can be big. Right now it hasn't been approved for use in the U.S., but ultimately, I think it can be extremely important worldwide. I think there's about 100,000 prostate patients treated in the United States every year with radiation therapy. There's probably another 100,000 or so internationally, and that number is going to grow. So that represents a very large opportunity for us if we can get a good share. And I think that there's maybe some Augmenix opportunities elsewhere in the body as well. So I think Augmenix is probably already one of them. It's just that you haven't seen the rest of the acquisition happen. You've just seen the initial investment. Calypso, I think, is important but is never going to be gigantic in terms of that number. And there are a number of other acquisitions, but for the most part, they're not huge. I mean, they are -- I think some of them have big revenue torque, but not very many. But nonetheless, I think I've got a list that adds up to $300 million.

Spencer R. Sias

That's going to be all the questions that we can take today. I want to all thank you all very much for participating in the call, and we're certainly happy and look forward to meeting with you next week in New York. We will give you additional information. Again, that thing will be webcast as well.

This call has been recorded. A replay can be heard on the Varian website where it will be archived for a year. And if you want to hear a telephone replay, you can dial 1 (888) 286-8010 from inside the U.S. or 1 (617) 801-6888 from outside the U.S. and entering confirmation code 14920221. Telephone replay will be available through Friday, and thank you very much for participating.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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