Advanced Oncotherapy (AVO-GB): Strong fundamentals underpin future growth

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Published to the market and investors on 16^th May 2019 @ 10.08am (BST).

Advanced Oncotherapy Plc
Recommendation: OUTPERFORM
Target Price: 155.00p
Current Price: 43.50p (CoB on 15^th May 2019)

KEY TAKEAWAY

The wider use of proton therapy ("PT") has been limited by price, ease of use and installation hurdles in the past. AVO is on the cusp of disrupting the radiotherapy market as a whole supported by proven clinical superiority of PT combined with the implied economic advantages associated with linear accelerators. With the recently announced ISO certification de-risking regulatory approval and the appointment of Moataz Karmalawy paving the way for successful commercialisation, AVO has reached an important inflection point that will, in our view, form a robust foundation for sustainable future financial performance. The £12.3m of additional funding announced late last week will support the continued manufacturing and testing of the first LIGHT system at Harley Street, highlighting AVO's ongoing commitment to delivering on its execution strategy, as outlined in more detail in this note. Hence, we maintain and reiterate both our OUTPERFORM recommendation and 155 GBp target price ("TP").

AVO is ideally positioned to conquer the growing proton therapy market

We believe that AVO is ideally positioned to penetrate the growing PT market due to LIGHT's advantageous physical properties that have profound implications for both clinical efficacy as well as affordability: (1) the proton beam allows better targeting of tumours while reducing radiation to surrounding healthy tissue compared with conventional radiotherapy, and (2) the system's linear design minimises the generation of stray radiation, thus decreasing the need for complex and expensive shielding. Combined with expected use in a range of additional cancers beyond the currently reimbursed indications, AVO is ideally positioned to penetrate the growing PT market.

Upcoming catalysts expected to drive share price momentum

Testing at the experimental site in Daresbury, UK, is well underway, while construction at Harley Street is progression as planned and will begin receiving components in 2019. We expect on-going updates on its timelines and assume share price momentum along with positive news flow. We expect the 2018 track record and momentum to carry forward into 2019E and view the risk of delays and setbacks as limited at this stage.

The Proton therapy industry offers significant structural growth

We assume a PT conversion rate of 15% by 2030, 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 2030 (c.2,900 PT vs. c.16,500 conventional PT machines)). PT is among the most attractive subsectors in Medtech, which grows significantly above the sluggish Medtech sector with low single digit top line growth. With the development timeline on schedule and first patients due to be treated in H2/2020E, we believe that AVO offers strong upside potential coinciding with successful early stage roll-out of the LIGHT system. We maintain and reiterate both our OUTPERFORM recommendation and our 155 GBp TP.

Kind regards,

Martin Piehlmeier | Analyst
Kieron Banerjee | Analyst 

goetzpartners Healthcare Research Team | Research Team

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