Market Share Implications of Accuracy's TomoTherapy Acquisition (ARAY)

Citi released a report today which discusses the implications of Accuracy's ARAY acquisition of TomoTherapy TOMO and its effects on Varian Medical Systems' VAR market share. While the deal will allow ARAY to expand from radiosurgery into radiotherapy, Citi analysts do not believe this will have near-term impacts on VAR's position in the radiation oncology market. This is due in part to VAR's relatively large market share of 55% compared to the single-digit shares of ARAY and TOMO.

Analysts further note that despite TOMO's recent underperformance, the newly combined organization should be profitable in future quarters. ARAY has expanded its market share but is still trailing key competitors such as Varian, Elekta, and Siemens. Analysts also believe that the ARAY deal is the best possible outcome for TOMO.

The report provides the following risks for Varian stock price: strong competition, near-term volatilities in the company's oncology backlog conversion, and potential cuts in hospital and free-standing clinic reimbursement.

Citi analysts maintain a Hold rating on VAR with a price target of $63. It is trading at $69.49.