Beaufort Securities view on Advanced Oncotherapy: Yesterday’s agreement with Thales tells investors two things: (i) That the signing of an agreement with such a highly prestigious global operator, that generally might not be expected to even open the door to small pre-prototype technology developers, underlines both parties’ confidence that the LIGHT system will be successfully developed during 2016 before moving to commercial production the following year and, (ii) That management is taking the forward initiative regarding the successful exploitation of its highly protected IP. As has been explained in numerous research documents, Beaufort’s commercial scenario for LIGHT is that the cost, safely, operational and size advantages its brings to the world of proton therapy, will effectively render ‘first generation’ systems all but obsolete; its development will also very significantly expand the international market for such systems from some US$2.5bn annually right now, to a figure potentially ten-times as large as LIGHT becomes the obvious successor to the similarly-priced but now relatively antiquated X-ray radiation systems that have a global installed base in excess of 20,000 units. In this respect, LIGHT uniquely faces a giant and accelerated global opportunity. To service this successfully, it will require the near-term facilitation of huge manufacturing and marketing support, which would require several years to independently create at significant expense. As Beaufort considers AVO to primarily be a medical technology designer of excellence, which will inevitably need to control its own small scale (relative to its potential international opportunity) manufacturing through which it would be able to develop and evolve successive generations of the LIGHT system, the volume manufacturing, distribution and servicing of its devices would be best done by external independent parties. The obvious choice for such a role being, of course, the existing ‘first generation’ manufactures who already have the right assembly, testing and support facilities in place. They would, of course, be required to pay royalties for the right to produce (possibly between US$2m and US$4m for a typical 3-bay LIGHT system), which would generate very significant income for the Group as output ramps up in coming years. The fact that AVO management has seen fit to put such a manufacturing agreement in place with Thales is, almost certainly, to create its own production and development facility; it is also a convenient way to remind the various ‘First Generation’ producers (Mitsubishi, IBA, Varian, etc.) that AVO could, if necessary, go it alone and so any licensing arrangements agreements that might be reached will not be up for negotiation. This places AVO is an exceptionally strong position and highlights the exceptional value of its technology. This will become increasingly clear as AVO moves toward demonstrating its first full scale prototype during H2’2016. With this in mind, the ‘moving around of the senior management chairs’ simply marks the shift in the business from focusing on the development of the first LIGHT system, to the ongoing commercial roll-out of its game-changing technology. Beaufort remains a very enthusiastic supporter of Advanced Oncotherapy and repeats its Speculative Buy recommendation on the shares.
Advanced Oncotherapy (AVO.L, 7.12p)
Advanced Oncotherapy, the developer of next-generation proton therapy systems for cancer treatment, yesterday made two important announcements. One being the realignment of roles and responsibilities of the Executive team, the other being a prospectively far reaching industrialisation agreement with Thales, the giant and highly prestigious French multinational technology design and manufacturing group. The agreement with Thales provides Advanced Oncotherapy with the support needed to move from the first LIGHT system, currently being developed for use at the Company’s flagship Harley Street site, to full commercial roll-out and a fully industrialised machine series production. Thales is a well-established manufacturer of high RF energy equipment including klystrons, electron tubes, amplifiers and X-ray detectors, as well as synchrotrons, accelerators and advanced medical imaging equipment. They will offer Advanced Oncotherapy access to Thales’s unique execution and engineering skills to manage the transition from prototype to a series production manufacturing line, as well as cost reduction capabilities. As part of the agreement, Thales will undertake the initial engineering studies and test facilities commissioning required to construct the custom-designed series production line. The cost of these activities will be funded by Advanced Oncotherapy and recovered through the retention of 100% gross margin on the initial LIGHT machines produced. In addition, in the future Thales intends to organise the series production so as to drive down costs, whilst operating under an appropriate quality framework. Regarding the directorate, Michael Sinclair, currently Executive Chairman, will become Chief Executive Officer and Executive Chairman; Sanjeev Pandya, currently Chief Executive Officer, will become Executive Vice President for Global Business Development and will remain on the Board of the Company. Nicolas Serandour, currently Chief Financial Officer, will become Chief Operating and Financial Officer.
Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc
