QuickView: Ion Beam Applications (IBA)

The investment case rests on the Proteus One proton beam machine. These electromagnetic rings are faster to build and more affordable at around €30m per facility (of which €20m is the machine) vs up to €120m for a five room Proteus PLUS facility. Proteus One is gaining EU sales and FDA approval is likely in 2014; US prostates remain a big target market. By expanding the global market, the One could enable10% of cancer patients to benefit from superior proton therapy as against 1% now. IBA is still restructuring and reducing costs. Management’s end-2014 goals are for revenue growth of 5-10% and an operating margin of 10%. This requires further restructuring plus sale of non-core operations.

Protons are green to go
Proton beam therapy is a form of radiotherapy. The advantage over X-rays is that proton beams deliver high energy, very precisely with no overrun and little intermediate dose. It is ideal for children, for treating head and neck cancers, and, in market terms, for prostates where the tight focus means effective therapy. The cost of systems so far means that few EU countries have facilities and those that exist are running at capacity. BRIC countries are a growing market. The US is still key.

Proteus PLUS compared to Proteus One
The existing Proteus PLUS system uses conventional magnets in a massive ring. The advantages are that a variety of therapies are possible and up to five treatments can be run in separate “rooms”. Each Proteus PLUS machine costs €30m and a five room facility may cost €120m overall and take two years to build and equip. Proteus One uses superconducting magnets to give a focussed beam powering one room but needs less calibration and is cheaper overall: €20m for the equipment and €10m for the bunker. No other competitor, in a niche market to date, has this system. Proteus One could create and dominate an expanded proton beam market benefiting at least 10% of cancer patients, only 1% can get the therapy today.

Valuation: 0.67 value to 2013 sales ratio reflects turnaround
FY12 therapy and industrial accelerator sales were €172m at 5.3% REBIT. Of this, €17m was cash services and €155m was contract accounted. There are €244m of orders for delivery over the next 2-3 years. Dosimetry cash revenues added €49m at 15.7% REBIT. The value looks low relative IBA’s recurrent sales and potential.

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