Advanced Oncotherapy PLC GPSL Research - Flash Note on AVO
October 10 2018 - 2:30AM
RNS Non-Regulatory
TIDMAVO
Advanced Oncotherapy PLC
10 October 2018
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Published to the market and investors on 10(th) October 2018 @
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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.
T +44 (0) 203 859 7725 | healthcareresearch@goetzpartners.com / martin.brunninger@goetzpartners.com
www.goetzpartnerssecurities.com
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