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‘A Business Case for a Proton Therapy Initiative.’

An expanding German hospital wanted to realise a proton therapy center. It was the central element in their strategy to become a regional oncology institute. Trees with Character asked all the questions and obtained all the information required to build a 20 year business case and presented it to the various stakeholders, including investors.

Case field

Date

November 6, 2016

Location

Germany

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  • German hospital with expansion plans, aiming to become a supra-regional center by adding proton therapy to their treatment modality
  • Given the constrictions of the available plot, consultancy was provided with respect to spatial requirements of various vendors and the impact on the overall structure of the expansion
  • A 20-year exploitation model was build to determine the optimal number of treatment rooms (proposing phased purchasing)
  • The model included a first estimate of financing costs allowing for various financing options (lease, senior debt)
  • The model allowed for the calculation of the financial impact of a range of scenario’s, including patient referral, treatment capacity and ramp-up speed.
  • The outcome of the model and the impact of the various risk- and potential-scenarios was presented to the board of directors and a bank
  • The bankers, with previous experience in financing a proton therapy center, encouraged the hospital to move forward on basis of the substantiated choice for number of treatment rooms and impact of perceived risks
  • The bankers stated the level of detail and flexibility of the model ‘surpassed anything they had seen prior’ in meetings with other prospective projects

Background – For a German hospital with substantial expansion plans, including a new wing for their radiotherapy department, consultancy was provided to determine spatial and logistical requirements of equipment of three different vendors. An exploitation model for twenty years, including a first order estimate of financing costs, was developed and presented to bankers with experience in proton therapy.

The central role of proton therapy in expanding hospital services – For the hospital, and for the bank to fund the expansion, proton therapy is central to their plans. With the ability to provide proton therapy treatments the catchment area of the hospital will become supra-regional and it will strengthen the hospital’s position as a cancer center. The spatial requirements of a multi-room proton therapy center, which is to become an integral part of the radiotherapy department, required a detailed analysis both of how many treatment rooms to realize and the spatial requirements various vendors are requiring for their solution. The bank, finally, had its focus on the proton therapy capacity as it will elevate the status of the hospital (expecting to boost overall patient and revenue growth) and as it requires a substantial investment in complex technology which, therefore, is associated with high risk.

Developing a 20 year exploitation model – From scratch an exploitation model (business case) was developed for a period of twenty years. Input for the model was provided by the hospital and based on current market developments. Input included among others the current and expected growth in the number of radiotherapy patients (per indication), estimated costs of land, building, imaging equipment, personnel, energy, proton therapy equipment (for three vendors), duration of treatment slots, expected (practical) number of operational hours and ramp up performance.

The model was flexible in calculating the effect (expressed in the Net Present Value (NPV)) of number of treatment rooms, interest rates, cost of equipment and changes in treatment capacity (phasing of treatment rooms, gradual changes in number of operational hours, variable treatment slot times, different ramp-up scenario’s).

The exploitation model thus allowed for calculating the impact on NPV of a range of scenario’s. This aided the client in making a substantiated choice for the number of treatment rooms as well as the optimal time for coming on line.

The output of the exploitation model became the required input for various financing scenario’s. The model was thus expanded to also calculate cashflow.

The pivotal importance of a detailed Business Case – The business case was presented to the hospital’s board of directors in a meeting with bankers with prior experience in funding a proton therapy center in Europe. After the meeting the bankers encouraged the hospital to push forward with the one scenario best supported by the exploitation model, commenting that the level of detail and flexibility the exploitation model provided ‘surpassed anything they had seen prior’ in meetings with other prospective projects.

Below several figures produced by the exploitation model. The figures are immediately and automatically adjusted when changing the underlying parameters. Contact us if you’d like more information.

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