Advanced Oncotherapy ("AVO") has announced the purchase of a LIGHT system by The Mediterranean Hospital of Limassol in Cyprus. In addition to the purchase price of €50m (£41.6m), the parties have entered a profit share agreement entitling AVO to a portion of the net profits from the new facility. With the manufacturing of the key hardware components of the first LIGHT system completed, technical risk has largely been removed in our opinion. The sale of the first commercial LIGHT system in Europe indicates AVO's focus has progressed from technical to commercial execution. We reiterate both our OUTPERFORM recommendation and target price ("TP") of GBp 155.
The Mediterranean Hospital of Limassol is one of the largest private hospitals in Cyprus. The hospital is the first centre integrated into the newly created National Health System formed in 2017 to modernise and upgrade Cyprus's health sector and bring it on par with its European peers in terms of efficiency and affordability. By improving the country's healthcare infrastructure, the government also hopes to establish Cyprus as a centre for international patients seeking to gain access to high quality care. In our view, the LIGHT system is complementary to this vision given not only its clinical advantages over conventional proton therapy ("PT") systems, but also due to its affordability and efficiency which in turn facilitate access to PT. Installation of the 3 treatment room facility is expected to commence by YE2023E, coinciding with the completion of construction work at the site.
The announcement of the system purchase follows a number of newly revealed commercial and technical partnerships. Firstly, AVO announced a two-year research collaboration with The Cleveland Clinic to demonstrate the benefits of proton minibeams, a key feature of the LIGHT system, in treating cancers. AVO also signed a memorandum of understanding with The London Clinic to operate the first commercial LIGHT facility on Harley Street in London under a profit-sharing agreement, superseding a joint venture with Circle Health signed in 2015. Technical / development risks for the LIGHT system are now largely removed, with the key hardware components of the first system manufactured and AVO is now focused on verification and validation activities. Hence, in our view, the first commercial sale of a LIGHT system in Europe indicates that AVO has shifted focus from developing the platform to marketing and commercialisation. We expect further news flow to follow throughout 2020E.
We believe that AVO is ideally positioned to penetrate the growing PT market. LIGHT's advantageous technical properties have profound implications for both clinical efficacy as well as affordability: (1) the proton beam allows better targeting of tumours while reducing radiation to surrounding healthy tissue compared with conventional radiotherapy, and (2) the system's linear design minimises the generation of stray radiation, thus decreasing the need for expensive shielding. As a result, we expect LIGHT to facilitate the wider adoption of PT beyond the currently reimbursed indications.
We assume a radiotherapy ("RT") to PT conversion rate of 15% by 2030E, which would make it a c.$8.0bn market ($4.5bn for 380 machines sold in that year and $3.5bn for the servicing of all machines installed up to 2030E). PT is among the most attractive sub-sectors in medtech, in our view. With the development timeline on schedule and first patients due to be treated in H2/2020E, we believe that AVO offers strong upside potential.