A research note from Beaufort Securities.
A small, young company with limited financial resources, trying to take on giant, established international peers with exceptionally deep pockets, in a product area that both tests the limits of scientific understanding whilst also facing the scrutiny of the world’s most exhaustive regulators? Sounds like a recipe for disaster! Yet Advanced Oncotherapy plc (‘AVO’) is confident that it will demonstrate a full-scale Linac Image Guided Hadron Technology (or ‘LIGHT’ system) prototype during the course of 2016, before commencing commercial production the following year. Moreover, this wholly-owned technology appears to enjoy quite rigorous global IP protection, while its low-cost, second-generation proton beam therapy device possesses USPs, in terms of price, size and safety features, sufficient to effectively relegate predecessor devices to obsolescence. Given such an outcome, of course, major international competitors wishing to ‘remain in the game’ will almost certainly be willing to pay a very handsome price, one way or another, to get their hands on its proprietary technologies.
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It is now widely accepted that the physical properties of protons, for precise local treatment of cancerous tumours, offer an intrinsic advantage over traditional high-energy X-rays as a source of therapeutic radiation. Yet there are presently only 54 operational proton therapy devices in the whole world. There are good reasons for this, including price (US$160m to US$220m excluding building cost for a ‘first generation’ 3-bay system); size and weight (a four story football pitch and as much as 300 tonnes) and; safety (Cyclotron technology is very hazardous and requires extensive bunkering). AVO’s LIGHT system, by comparison, is compact enough to fit into a single-story penalty area, will cost around one-fifth of the price of the typical price of a three-bay first generation system, will be safe enough to operate in city-centre locations, while requiring much less power to operate, short power-up times, as well as offering a more precise direct and dynamic scanning beam; maintenance and operating costs will also be a fraction of that demanded by existing devices. AVO’s CERN-developed and protected linear accelerator technology has been validated through the successful testing of LIBO (its Linac Booster) which is expected to achieve a 230MeV. This is expected to lead to construction of the first full-sized prototype LIGHT during H2’2016, before moving to first commercialisation in 2017, for which the highly prestigious French multinational, Thales Group, has already started the optimisation studies required for mass production. AVO’s management appears to have significantly reduced the technical, commercial and financing risks that such leading-edge technical developments usually present. It appears set to rapidly capture the larger chunk of an existing ‘big-ticket’ US$2.5bn market that is forecast to nearly triple in size by 2018. Yet, in fact, the true global opportunity for LIGHT is potentially a multiple of this, given that it must also be considered the obvious replacement/upgrade for operators of the giant installed base of aging and, in medical terms at least, relatively antiquated X-ray radiotherapy systems. Tackling the presently significant unmet medical need, given growing incidence of cancer supported by aging populations and lifestyle, for which a global economic cost in 2009 was put at US$286bn, suggests the number of treatment rooms should rise from 121 today to upwards of 13,000. So the reality is that if AVO delivers exactly ‘what it says on the tin’, the operational and cost advantages LIGHT offers will effectively render first generation devices all but obsolete, while also placing the obvious superiority of proton beam technology within reach of the global medical fraternity for the first time. AVO’s principal limitation would then become simply its capacity to deliver, a challenge which is being addressed through the AVO/Thales partnership. |
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