James Faulkner on Advanced Oncotherapy: Vast potential for further significant growth

Continuing a recent run of speculative small caps that could be set to surprise on the upside in 2015, I would like to draw readers’ attention to a firm that could be set to transform the cancer treatment market. Now looks like an interesting time to be a shareholder of life sciences minnow Advanced Oncotherapy (AVO), which has developed a new slant on the radiotherapy treatment currently used to treat around 60% of cancer patients worldwide.

The continued challenge clinicians face is to deliver adequate amounts of radiation to the tumour while sparing non diseased, healthy tissue and vital organs like the heart, lungs, spinal cord, liver, bladder and kidneys. The advantage of sparing healthy tissue is to reduce the risk of secondary cancer from the treatment itself.

Advanced Oncotherapy’s focus is to develop advanced, cost effective and patient-friendly radiotherapy treatments which are clinically superior to those currently available. The company is a leader in affordable and accessible proton beam therapy which eliminates the need for a cyclotron or synchrotron which alone weigh in excess of 200 tons. This new technology is significantly smaller and thereby reduces capital expenditure, shielding requirements and running costs compared to other machines. Unlike x-rays, protons do not emit high doses of radiation when they travel through the body. Their killing power comes from the sharp falloff when they stop – this is known as the Bragg Peak.

AVO has exclusivity to the technology, SD-IORT, for early stage breast cancer, which can also be used to deliver electronic brachytherapy in one or more doses (called fractions) to treat non-melanoma skin cancer, endometrial cancer, and rectal cancer. This mobile service provides therapeutic radiation treatments on demand with minimal toxicity to surrounding healthy tissue, without the complex handling, resource logistics and costs associated with using radioactive isotopes. The result is greater cost effectiveness and increased patient convenience.

Acquisition of CERN spin-off…

AVO pulled off what has the makings of a bit of a coup with 2013’s acquisition of ADAM, a spin-off from CERN which is developing particle accelerators to treat cancer. As many readers will no doubt be aware, CERN is spending billions researching the so-called ‘god particle’ and the origins of the universe, but has also invested around €14 million in ADAM’s ‘disruptive’ cancer treating technology. Through the share-based acquisition ADAM’s previous owner, Barhma, a Swiss vehicle controlled by the Colussi family, became a major shareholder in Advanced Oncotherapy with a 29.9% stake. ADAM retains its research facilities at the CERN campus near Geneva, and continues its work to develop proton beam technology for clinical applications in hospitals.

So why was this acquisition so important?

Firstly, the purchase of ADAM firmly establishes AVO as the most cost effective provider of 3-room treatment centres in a growing world market of proton therapy, which is expected to treble by 2018 and reach $2.5 billion by 2030. Second, the acquisition brings with it new equipment called Linac Image Guided Hadron Technology, or LIGHT, the next generation of proton beam therapy, and has an order pipeline at £200+ million and an anticipated net profit margin of 10% on this potential future revenue stream. AVO has therefore won competitive tenders for 24 rooms out of a total of 33 Proton Beam Therapy rooms ordered worldwide. This is a 73% market share which completely reverses the previous 20 years dominance by IBA which had installed 45 of the total 121 rooms built over that period.

Interestingly, market penetration of Proton Therapy is still only less than 1% of all radiotherapy installations worldwide, so there remains vast potential for further significant growth. Should the firm manage to sustain this kind of market dominance in what is clearly a very rapidly growing market, the current £43.5 million market cap will begin to look very conservative indeed.