Advanced Oncotherapy ("AVO") reported a H1/2019 net loss of €11.2m, slightly narrower than in H1/2018 (-2.1% YoY), as higher finance costs (£0.59m) largely offset a decrease in administrative expenses to £11.0m (from £11.3m) and higher tax credits (£0.38m). 2019 has been an exciting period for AVO, which has made significant progress with the technical development of the LIGHT system and secured additional financing of c.£31.2m. We continue to believe in the potential for the LIGHT system to disrupt the radiotherapy market as a result of the proven clinical superiority of proton therapy ("PT"), combined with the implied economic advantages associated with linear accelerators. With much of the technical risk removed, the company is moving towards an important inflection point as it transitions from the development of LIGHT to marketing and commercialisation. We maintain both our OUTPERFORM recommendation and £1.55 target price ("TP").
H1/2019 has seen several key operational milestones in the development of the LIGHT system. The awarding of ISO certification has de-risked the regulatory process and reinforces the company's commitment to deliver a proton therapy system that has the potential to disrupt the radiotherapy market. Structural building work in Harley Street, the site of the company’s first proposed commercial installation of LIGHT, was completed in July, thus transitioning the project into the lower-risk fit-out phase. With most of the hardware on track to be delivered to the company’s assembly facility in Daresbury by YE2019E, we see limited risk for delays and setbacks and expect first patient treatment in H2/2020E.
Post period end, AVO successfully secured additional equity and debt financing totalling £19.2m, compromising an oversubscribed equity subscription (£14.8m) and a new debt facility (£4.0m). In addition to the equity and debt financing secured in May 2019, this brings the total funds raised in 2019 to more than £31.2m which, in our view, provides a strong endorsement for the potential of the LIGHT system. The proceeds are expected to support both ongoing operational activities and to progress the verification and validation of the LIGHT system towards regulatory approval.
We assume a PT conversion rate of 15% by 2030E, 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 2030E). PT is among the most attractive sub-sectors in medtech, in our view. With the development timeline on schedule and first patients due to be treated in H2/2020E, we believe that AVO offers strong upside potential with our TP of £1.55 per share representing c.3.7x upside to current trading levels.