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Hardman & Co – Advanced Oncotherapy (AVO) – China- an emerging opportunity
Advanced Oncotherapy (AVO) – Focused on delivering a more affordable, novel proton-based radiotherapy system, based on a technology originally developed and tested at the world renowned CERN facility in Switzerland. Commercial momentum is building, having recently secured a second purchase order in China, formed a JV with Circle to operate potentially the first proton therapy facility in the UK (Harley Street, London) and further expanded its order book which amounts potentially to $480m. AVO’s system has many attributes (affordability, modularity, versatility) that should appeal to the growing healthcare demands of China, amongst others.
- China: AVO announced that it had received a purchase order for its LIGHT system from the China-Japan Union Hospital of Jilin University in October 2015, valued at $75-80m. This represented the second purchase order in China. Additionally, the Company has four further framework agreements in place.
- Addressable market: China represents a significant opportunity with the capacity for at least 100 proton therapy centres. With only two currently operational and a further eight in the pipeline, AVO appears well placed within this significant emerging market, having already secured a 20% share of pipeline.
- Competition: AVO (market cap £103m) is a pure play on proton therapy. The nearest direct competitor in terms of proton therapy is Ion Beam Applications or IBA (market cap £643m), in which proton therapy represented ca.57% of 1H 2015 revenues and 62% of EBITDA. Varian Medical Systems (market cap £4.9bn) and Elekta (market cap £1.89bn) are the leading providers of radiotherapy systems whilst Accuray (market cap £283m) sells the only robotic radiosurgery system, CyberKnife. Of these, Varian also has a presence in proton therapy. Comparative valuations for radiotherapy companies * Valuation ratios adjusted for calendar year end Prices at close of business on 1st February 2016 Source: Hardman & Co Life Sciences Research.
- Valuation: With two system sales, a potential order book of 12 systems ($480m+) and the capacity to produce up to 30 systems p.a., operational momentum is building. We have not altered our forecasts. Timing of revenues from this purchase order is not yet clear.
- Risks: Delays to completing LIGHT installation in Harley Street in 2017 and first patient treatment in 4Q 2017 – both mitigated by partnership supplier network, and the small size relative to its principal competitors which impacts potentially on vendor financing capability as well as external perceptions.
Investment summary: Advanced Oncotherapy Plc is entering a market on the cusp of a steepening adoption curve, not least in China, with a PT solution that is unique with respect to its competitors and addresses the needs of all key stakeholders. The Company has sufficient cash to achieve its near term goal of first patient treatment in 2017 beyond which additional capital may be required.
Download full report Hardman_AVO-01.02.16