LONDON – Ion Beam Applications SA (IBA) has taken a giant step into China, sealing a €100 million-plus (US$118.2 million) licensing deal with a local company to manufacture, install and maintain its proton beam cancer therapy systems.

Under the agreement, CGN Nuclear Technology Development, a company quoted on the Shenzhen stock exchange, and its wholly owned subsidiary CGN Dasheng, will have exclusive rights to IBA’s Proteus Plus technology in China.

Following the signing of the contract, Louvain-la-Neuve, Belgium-based IBA is about to get the first payment of €20 million. Further milestone payments of €50 million, based on delivery of technology-related information, are expected by the end of the year.

The balance is due within the next four years against other knowhow and technology transfer milestones, including IBA providing training to CGN Dasheng staff. Once CGN Dasheng starts manufacturing and marketing the proton beam systems, IBA will get a percentage of every sale. The Louvain-La- Neuve, France-based company also is entitled to exclusivity royalties, to be paid over ten years.

“Proton Therapy has a bright future in China. We see many deals materializing,” said Olivier Legrain, CEO of IBA. “It’s a fair agreement, putting the right valuation on our intellectual property, and also forming a partnership to develop the Chinese market,” he told BioWorld.

The agreement is a significant breakthrough because the market is strongly regulated by the Chinese government, with hospitals requiring licenses to acquire proton therapy systems.

Given this, IBA recognized some time ago that the best way into the market would be to partner with a domestic company. “To unleash the potential of China, a local manufacturer needs to emerge. With us, or without us, this would happen, so we said what if we could help someone emerge as local manufacturer – this could be the best way to harvest the full potential,” said Legrain.

In the event, it took five years to seal the deal with CGN Dasheng. Legrain said there were other potential partners, but only CGN Dasheng was prepared to put such “huge value” upfront, at the point of technology transfer.

“€100 million is a lot of money,” Legrain said. “And we think if we do it together with CGN Dasheng the market will open.”

More proton therapy systems coming to China

A few weeks ago, the Chinese government announced it is increasing the number of proton therapy licenses from ten to 16 this year. Based on what has happened in other similar technologies, Legrain expects the licensing requirement will be scrapped once there is a domestic supplier.

“We believe eventually the Chinese government will make it a free market, but only if there is a Chinese manufacturer,” he said.

IBA is the world leader in the emerging proton beam market, with 58 systems sold and 21 projects under development. By the end of this year 100,000 cancer patients will have been treated with IBA machines.

This leadership rests on a strong intellectual property position, with IBA having 250 patents around its proton therapy systems. Legrain said the level of trust built up over five years of negotiations and the structure of the deal with CGN Dasheng made him confident of being able to enforce intellectual property rights in China.

“Paying us €70 million [in advance of starting production] is a sign that they want to leverage to get it back. To recoup and have a good return on investment [CGN Dasheng] needs to have a healthy relationship between the two companies,” said Legrain.

While wanting to promote a Chinese manufacturer, IBA did not want to foster development of an international competitor. The rights granted to CGN Dasheng are for mainland China, and exclude Hong Kong, Taiwan and Macau.

“This is the first time we have done a licensing deal. We can accelerate penetration if we partner in China, in a way we don’t see in any other jurisdiction,” Legrain said.

In addition, IBA currently is in negotiations to sell five proton beam systems to hospitals in China that have been granted licenses. If successful in winning any of the contracts, the company will manufacture and service the systems directly. The contracts are expected to be worth €30 million to €35 million each.

COVID-19 causes order backlog

Currently IBA has a backlog of orders for proton therapy systems, with shipment and installation impacted by COVID-19 lockdown measures and travel restrictions. As a result, several project timelines have had to be rescheduled, with IBA holding off manufacturing systems because construction of facilities to house them has slowed down.

As a result, sales in the first half of the year were down by 14.3% compared to the same period last year, at €109.7 million. There were no new orders for proton beam equipment in the first six months of 2020. While the pipeline is strong, the ongoing uncertainties around the pandemic mean IBA is not providing an estimate of 2020 full year earnings.

Things also are in flux on the competitive front, with the second biggest supplier of proton beam systems, Varian Medical Systems Inc. due to be acquired by Siemens Healthineers AG for $16.4 billion, a huge 42% premium to the market capitalization.

Varian has a 22% share of the proton therapy market, compared to IBA’s 41%, but proton therapy is a minor part of the Palo Alto, Calif.-based company’s business. “[Siemens] probably didn’t buy it because of the proton therapy business,” said Legrain. “Is it good news, or bad news for us? We believe it’s neutral to positive. The way I look at it, it’s business as usual, [though Siemens] will have to justify the price they are paying.”

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