Advanced Oncotherapy PLC GPSL Research - Flash Note on AVO

TIDMAVO

Advanced Oncotherapy PLC

10 October 2018

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Published to the market and investors on 10(th) October 2018 @ 7am (London time).

 
Advanced Oncotherapy (AVO-GB): Accelerated speed and energy of LIGHT 
 Recommendation: OUTPERFORM 
 Target Price: 155p 
 Current Price (as at COB on 9(th) October 2018): 32.50p 
 
 KEY TAKEAWAY 
 LIGHT is well on track to replace obsolete cyclotrons. The company has issued a technological 
 update this morning with a number of step changes. AVO is on an accelerated development progress 
 and the new technical management team and funding is bearing fruits. AVO can well take the 
 entire growth from its cyclotron competitors, which will become an obsolete technology by 
 2023E, in our view. Subsequently, proton technology could finally fulfil its initial promises 
 to replace conventional LINACs. These promises led only to disappointments with a series of 
 profit warnings from PT cyclotron manufacturers. AVO has turned the corner at the beginning 
 of this year and is on a strong trajectory to deliver on its promises. The investment proposition 
 is highly attractive at this stage. We strongly maintain and reiterate both our OUTPERFORM 
 recommendation and TP of 155 GBp. 
 Progress of AVO's experimental beam at CERN - 52MeV achieved - We remind investors, that the 
 ADAM team at CERN is comprised of some of the world best physicists, who have not only taken 
 on development, but also technical guidance on development timelines. We had hardly seen any 
 setbacks since the ADAM team participates in communication with investors. We see a fully 
 aligned management team at AVO. The milestone of arriving at 52MeV exceeds the energy levels 
 the team has achieved on 28th of September this year by almost 100%. AVO will add 13 further 
 Coupled Cavity Linacs ("CCL") to arrive at the final required energy level of 250 MeV, which 
 we expected in H1/2019E. 
 RaySearch partnership is expanding - best in class oncology information system. The treatment 
 of cancer patients is still a flawed process and system integration is far from were it should 
 be. Software is the key differentiation factor for the integration of all treatment modalities 
 and its medical instruments. The partnership with RaySearch, a Swedish radiotherapy software 
 company has not only the best in class treatment planning system ("TPS"), but also launched 
 a superior oncology information system ("OIS"). The system integration of LIGHT in a combination 
 of TPS and OIS goes far beyond a optimal use of proton therapy systems ("PT"). AVO might be 
 the first instrument player who has the opportunity to be part of a fully integrated and holistic 
 oncology treatment process. We feel that would be a significant progress in a world of evidence-based 
 medicine and health economical approaches. 
 Harley Street and Daresbury well on track - The Harley Street project, AVO's first customer 
 is well on track. The experimental site in Daresbury, UK, where the machine will be installed, 
 tested and then dismantled and set up in Harley Street, is also well on track. We expect on-going 
 updates on its timelines and assume share price momentum along with positive news flow. Given 
 the 2018 track record, we view the risk of delays time lines and setbacks as limited at this 
 stage. 
 LIGHT will first erode cyclotron growth and then replace conventional LINACs. We believe the 
 cyclotron machines will render obsolete by 2025, when the more nimble and technical superior 
 PT Linac is commercially viable. LIGHT is likely to fulfil PTs promises at the beginning of 
 the decade. As a reminder, the cyclotron technology involves lengthy and complicated building 
 preparation. Heavy cyclotrons and large concrete bunkers make the installation a major building 
 project, which is, regardless of pricing, often a big hurdle. The advantage of LIGHT being 
 faster and less complicated combined with a cheaper production process and a nimbler way of 
 modulating the beam, could give the company a fast head-start with a future margin expansion 
 opportunity driven by an attractive service revenue stream. 
 The Proton therapy industry offers significant structural growth. We assume a PT conversion 
 rate of 15% by 2030E, which would make it a c.$8.0bn market ($4.5bn for 380 machines in that 
 year sold and $3.5bn for the service of all machines installed up to 2030E (c.2,900 PT vs. 
 c.16,500 conventional PT machines)). Medtech as a whole has lost its steam due to lack of 
 innovation, followed by price pressure from payers, who no longer pay top dollar for commoditised 
 devices and instruments. We believe that AVO offers a great opportunity for a Medtech outperformer. 
 We maintain and reiterate both our OUTPERFORM recommendation and target price of 155 GBp. 
 Kind regards, 
 
 
 
 
 
Martin Brunninger | Analyst 
 Martin Piehlmeier | Analyst 
 Erland Sternby | Marketing Sales 
 
 goetzpartners securities Limited 
 
 The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK. 
 
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 Managing Directors: Dr Stephan Goetz, Martin Brunninger and Ulrich Kinzel. 
 
 
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(END) Dow Jones Newswires

October 10, 2018 02:30 ET (06:30 GMT)