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by Josh Allsopp – Proactive Investors
Radiotherapy remains the mainstay of cancer treatment, with over half of all patients undergoing radiation based treatment of some sort.
There has been a great deal of coverage recently about the possibility of an ultimate cancer cure that uses the body’s own immune system to take out the killer disease, or finding its Achilles heel.
Researchers at University College London identified unique biological flags, common to every single cancer cell, which could be used to guide existing immunotherapies.
But any meaningful treatments emanating from this experimental branch of science are many years off- if they ever make it to the market at all.
“We’ve got lots more to see from immunotherapy, we are just at the tip of understanding how this really works and I think it has lots more potential to fight lots of different types of cancer,” said Dr Emma Smith, senior science information officer at Cancer Research UK.
The truth is that physicians still rely on technology that is almost a century old. Radiotherapy remains the mainstay of cancer treatment, with over half of all patients undergoing radiaton based treatment of some sort.
Unlike drugs and immunotherapies, radiotherapy is a physical process which destroys the cancer cells through targeted radiation, meaning there are fewer biological variables but can often result in unpleasant side effects.
“The role of radiotherapy will continue to be important in cancer treatment for the great bulk of patients,” said Dr Michael Sinclair, chief executive of London-listed Advanced Oncotherapy (AVO), which is at the forefront of experimental proton beam therapy.
“The research being done with immunotherapies is really excellent and I commend the team behind this breakthrough. We have known for some time that the body tries to attack the tumours themselves, but it’s a tough battle.
“The tumours put up a smoke screen, meaning they essentially hide from the body’s defences.
“Drugs enable the smoke screen to be removed, but one of the key setbacks is that it’s difficult to get it to work on a long term basis.”
Unlike current radiotherapies, proton therapy uses a particle accelerator to direct a much narrower beam of radiation at the cancer.
Due to their high rates of division, cancer cells are particularly vulnerable to this type of therapy as it actively destroys DNA.
“Proton beam therapy is by far the most precise and produces far fewer side effects and collateral damage, such as the problem of residual tumours you often find with other treatments,” said Sinclair.
However, there are fewer than 160 proton beam facilities worldwide, compared to the 18,000 x-ray based treatment centres globally. The reason for that is cost.
Currently machinery is enormous and costly to house and operate, requiring a lot of energy.
Neil Madle, spokesman for Varian Medical Systems (NYSE:VAR), a world leader in radiotherapy technology with over 60% of the UK market, reckons the advanced therapy is around ten times more expensive than current x-ray treatment.
“Facilities currently cost around US$25-$30mln and that is the cost of just one room,” he said.
“Early facilities were the size of football pitches, now they are the size of tennis courts, but they are going to get smaller and less expensive as the technology improves.”
No wonder Harvard University health economist Amitabh Chandra described proton therapy as the “Death Star” of cancer treatment technology.
“Until the cost comes down to around $10mln, only then will it be a viable alternative,” said Madle.
The primary focus of research in this area is to bring costs down by developing the second generation of proton therapy.
“Using linked linear accelerators, a similar process to the hadron collider, harnessing work done in association with CERN, our tech is designed to address the cost parameters of this type of treatment,” said Sinclair of Advanced Oncotherapy.
“The new and disruptive technology we are developing costs a fraction to operate and house, and uses significantly less energy.
“We see immense potential for proton therapy for the future of cancer treatment and we aim to address the cost parameters.”
Madle said Varian was working to a more conservative timescale and was conscious of the limitations of the treatment.
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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