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Hardman & Co

Advanced Oncotherapy Analyst Q&A discussing the LIGHT collaboration (LON:AVO)

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 interesting developments for the company. Can you tell us what has been going on?

A1: Until now, the focus of the company’s activities has been on the technical aspects and potential advantages of its new proton therapy system, called LIGHT. All the recent announcements have been about commercial arrangements, which indicates that potential purchasers are comfortable that LIGHT will be completed and validated in the foreseeable future.

The confidence in a successful outcome with LIGHT and the momentum behind the commercial deals were highlighted in our report.

Q2: Can you flesh out a little more detail about these commercial deals?

A2: First, there is a new arrangement with respect to the company’s prestigious Harley Street site. Investors that have been following AVO for some time will recall that the company originally did a deal with Circle Health for the day-to-day management of that site. However, there has been a natural evolution at both companies such that a new deal was needed. They have now signed a 10-year agreement with the also prestigious group, The London Clinic, for the daily operational activities at Harley Street, and will be increasing it to a two-room facility.

Secondly, the company announced that a LIGHT system will be installed at The Mediterranean Hospital, Cyprus. This is due to be completed by the end of 2023 and the LIGHT system will cost €50m, about £42m at today’s exchange rate.

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

Q3: Is there anything of note in these deals?

A3: Financial terms were not disclosed. However, in each case they will be working with its partners such that it will have a profit sharing arrangement with the operators So the significance of these deals is that are structured to increase the log-term cashflows for the company.

Q4: Can you just bring us up to date with respect to the LIGHT system?

A4: Yes, at its AGM in July, the company set out a schedule of module deliveries at its UK assembly and testing facility in Daresbury, Cheshire. Progress with this schedule was updated along with its interim results at the end of September, and we provided a further update in the research report.

All of the modular components, together with the patient positioning system, have been manufactured and either delivered or placed in storage at its UK assembly and testing facility in Daresbury, Cheshire. Currently the modules are being integrated and tested as part of the overall validation process in readiness for the application for CE marking later this year.

Q5: What was overall conclusion and investment view for Advanced Oncotherapy?

A5: After several years focusing on the technological and manufacturing challenges of LIGHT, the focus has rapidly changed to commercial execution. These three partnerships represent a step-change for the company and provide an insight into how the company is building its business model.

As for investment, today’s market capitalisation barely equates to the gross investment by AVO to get LIGHT where it is today. There is a big disconnect between fundamental and market valuation which we expect to change as the market realises that more potential purchasers have the confidence that LIGHT will become a reality in the near future.

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