Advanced Oncotherapy Analyst Q&A: Positioned well for CE certification application (LON:AVO)

Hardman & Co

Advanced Oncotherapy plc (LON:AVO) is the topic of conversation when Hardman and Co’s Analyst Dr Martin Hall caught up with DirectorsTalk for an exclusive interview.

Q1: You recently released a report on Advanced Oncotherapy highlighting some recent developments at the company. Can you update us what has been going on?

A1: As a reminder, AVO was established with the goal to develop a proton therapy system to treat cancer patients that was affordable, making it more universally available. Until now, the focus of the company’s activities has been on the technical aspects and potential advantages of its new proton therapy system, which is called LIGHT. During the first half of 2020, the company made a number of announcements about commercial partnerships, highlighting that the company is close to finishing its first LIGHT system and that potential purchasers are comfortable that LIGHT will be completed and validated in the near future.

Q2: Can you tell us some more about the potential advantages of LIGHT?

A2: Yes, I will separate them into three parts, but I will not go into the complex technical aspects.

First, proton therapy is based on protons being accelerated to a very high energy level which can then be targeted precisely at areas of cancerous tissue. Conventional cyclotrons generate a proton beam with a single high energy which is reduced to a working level through the us or absorbers or filters, with the excess radiation being wasted. Consequently, to protect patients staff and external people, considerable lead shielding is required. In contrast, LIGHT accelerates the protons only to the required energy level, meaning that there is little wastage and the protective measures needed are much less.

Secondly, and linked to that first point, clinics using conventional cyclotrons need to be large, purpose built facilities, which adds a significant additional cost to the project. In contrast, LIGHT is modular in design, making it compact and giving it flexibility in the construction process, thereby enabling it to be sited in smaller, often existing buildings. A good example of this is the Harley Street facility. Consequently, the construction costs are only a small percentage of those for a cyclotron.

Thirdly, physicians are continually looking at new and advanced technologies that might boost therapy and improve patient outcomes. The LIGHT system is far more adaptable and, for example, can be used with new fractionation techniques to significantly reduce the number of times a patient needs to visit the clinic for treatment.

Thirdly, and this was announced subsequent to our research report, AVO announced a collaboration with University Hospitals Birmingham NHS Foundation Trust for the construction and installation of a LIGHT system in Birmingham.

Q3: So how close are we to the first LIGHT system?

A3: The company highlighted in its interim results statement that all the key modules for a LIGHT system have been manufactured, validated, and delivered to its assembly site in Daresbury, Cheshire. These are currently being integrated. The patient positioning system is currently in transit.

However, like most companies, AVO has not been immune to the consequences of Covid-19 and had to close Daresbury, temporarily, during the lockdown. Hand-in-hand with the assembly process, detailed documentation needs to be written as part of the regulatory process. So AVO took the opportunity provided during the lockdown to get all this paperwork advanced, together with an upgrade to the software for its treatment planning system. This has positioned AVO well for its application for CE certification.

Q4: How is AVO funding all of this work?

A4: Financing a technically complex medical device project is capital-intensive and has been a challenge in difficult markets. However, given the significant technical progress and considerable de-risking of the LIGHT project, the end-goal is now very much in sight. The company took the opportunity to strengthen its balance sheet earlier in the year and has also taken on some new loan facilities.

Moreover, AVO is looking at novel ways to help purchasers to fund the installation of a LIGHT system, which involves a profit share arrangement based on patient treatments. This shows that AVO is continually looking at opportunities to fund this fascinating project.

Q5: Is there anything that we can look forward to?

A5: A number of investors have been following this project since its inception and are realising that many of the risks have now been removed and the first LIGHT system really is not far away, as evidenced by the recent commercial deals. In order to keep investors informed, the company is holding an investor day on Monday 19th October where management and scientific advisors will be available to answer investors questions.

As for investment, today’s market capitalisation broadly equates to the gross investment by Advanced Oncotherapy to get LIGHT where it is today. There is a big disconnect between fundamental and market valuation which we expect to change as confidence increases that LIGHT will become a reality in the near future. Moreover, Siemens Healthineers has agreed a very handsome price to acquire Varian to gain access to its radiation oncology business.

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