Advanced Oncotherapy Plc (LON:AVO) is focused on delivering a more affordable, novel, proton-based radiotherapy system, based on technology originally developed at the world-renowned CERN. Major milestones have been achieved in 2017 and the company remains on track with its development plan to deliver and install the first LIGHT system in 2019. Confidence has been enhanced greatly by technical milestones, a distribution agreement in China and SE Asia, and a sizeable capital increase. An announcement that Hitachi and Mitsubishi Electric are integrating their respective proton therapy offerings into a single entity is a recognition of the value of this global opportunity.
Strategy: To develop a compact, modular and affordable proton therapy system that generates superior patient outcomes. AVO benefits from the technology know-how developed by ADAM, a medical spin off from CERN, and relies on a base of world-class suppliers.
Consolidation: Hitachi (TSE:6501) and Mitsubishi Electric (TSE:6503) have announced their intention to combine their respective proton therapy offerings into a single entity, to generate efficiencies in the design, manufacture and commercialisation of their systems and to offer better post-installation service.
Global presence: Mitsubishi is ranked #2 in Japan but has no installations outside its home territory; in contrast, Hitachi is #1 in Japan, and has developed also a solid presence in the US, where it has four installations. The combined entity will become global #2 in the installed base of treatment rooms.
Risks: Although AVO has its own specific risks with the development and funding of LIGHT and Harley Street, this deal also poses some risk. It creates another large competitor for AVO; but also highlights the significant opportunity for AVO and underlines the challenges that key competitors with their circular accelerators face, in particular the challenge to align offer and demand.
Investment summary: Demand for Proton Therapy is increasing worldwide and the need for a small, flexible, and affordable machine is apparent. AVO is well positioned with its disruptive offering of a flexible & affordable system. Although no financial information regarding Hitachi-Mitsubishi has been released, the deal indicates the high value of having a global offering in this growth industry.
