Dive Brief:

• China has exempted medical linear accelerators from the tariffs imposed on U.S. imports, providing a boost to radiation oncology manufacturers including Varian Medical Systems. The 25% tariff wiped $15 million off Varian's earnings in the third quarter but the company and rivals such as Accuray and Elekta now stand to recoup previously paid fees and be free from further charges

• Analysts at Jefferies interpreted the addition of medical linear accelerators to the list of products exempted by China as a sign of the country’s demand for radiation therapy devices.

• Meanwhile, President Donald Trump tweeted Wednesday the U.S. would delay the imposition of increased tariffs from 25% to 30% on $250 billion of Chinese products by two weeks in a gesture of goodwill.

Dive Insight:

The U.S.-China trade war has hit the radiation oncology sector harder than many other sections of the medtech industry. Varian warned that tariffs would create a $60 million headwind in 2019, mostly as a result of the fees imposed on devices imported into China. Accuray, a smaller rival, advised investors to expect tariffs to wipe around $6 million off revenue growth in fiscal 2020.

Those forecasts now look too pessimistic. From Sept. 17, China will exempt medical linear accelerators from tariffs for at least one year. China will apply the exemption retroactively, meaning companies affected by the tariff can recoup taxes paid since it came into force in August 2018.

Analysts at Jefferies estimate the retroactive exemption could be worth $48 million to Varian, which is yet to quantify the impact of the changes. Varian may share more information when it releases its fourth quarter results next month.

The near-term impact of the refunds and exemption is only part of the picture. The exemption can also be seen as a positive indicator of demand for radiation therapy in China and the chances of the trade war being resolved. Analysts at RBC Capital Markets called China’s action "the latest attempt to de-escalate what has become a protracted trade dispute," while their peers at Jefferies picked up on the readthrough for 2020 sales of radiation therapy equipment in China.

"The bottom line is that China's move to alleviate the tariff bottleneck on U.S. [medical linear accelerators] is a strong indicator that demand for [radiation therapy is] real and that orders from last year's quota licenses should begin to flow next year," Jefferies analysts wrote in a note to investors. 

A clearer picture of the wider, longer-term effects of the exemption may start to emerge next month, when Varian reports its financial results and Chinese and U.S. trade negotiators are due to meet in Washington. 

Shares in Varian closed up 4% following the news. Accuray and Elekta experienced similar increases.