Advanced Oncotherapy (LON:AVO) goal is to deliver an affordable and novel proton beam therapy (PBT) system, based on state-of-the-art technology developed originally at the world-renowned CERN. 2018 was characterised by achievement of a number of technical milestones, the successful integration of all the module types that constitute the LIGHT accelerator, and acceleration of the proton beam to an energy of 52MeV, sufficient to treat superficial tumours. With LIGHT, its breakthrough PBT technology, AVO is aiming to replicate the commercial success of MRI by opening new untapped markets with an innovative financing strategy.
Strategy: AVO is developing a compact and modular PBT system at an affordable price for the payor, financially attractive to the operator, and generating superior patient outcomes. AVO benefits from the technology know-how developed by ADAM, in Geneva, and relies on a base of world-class suppliers.
Adoption of PBT: Expensive construction of high specification buildings to house high cost machines has limited the rate of adoption of PBT, in a similar manner to that seen with MRI. AVO is aiming to change these dynamics with a lower priced modular system that is easier to install in existing clinical facilities.
Turn-key solution: Coupled with its technical advantages, the LIGHT system lends itself to leasing and vendor financing arrangements, an important pre-requisite for the sales ramp-up. Under this model, customers will benefit from a lower upfront capital outlay, which provides them with further flexibility.
Risks: In 2018, the more complex technical challenges were overcome and progress towards a fully functional accelerator is underway in preparation for CE marking. Execution risk remains, but establishment of an innovative financing package for providing LIGHT to potential customers has lowered this risk.
Investment summary: Advanced Oncotherapy’s market capitalisation of £85m equates only to the amount invested into LIGHT to date, which does not reflect either the enormous technical challenges that have been overcome, or the market potential. DCF analysis of the LIGHT prospects generates an NPV of at least 288p a share (fully-diluted). The disconnect between fundamental and market valuations offers an investment opportunity which will reduce as AVO complete its financing plan.