Advanced Oncotherapy #AVO – Final Results statement plus CEO and Chairmans report

Advanced Oncotherapy (AIM: AVO), the developer of next generation proton therapy systems for cancer treatment, announces audited results for the year ended 31 December 2017, another year of significant technological development and installation of the Company’s first LIGHT system.

Key highlights:

·     Successful integration of three of the four key LIGHT system structures significantly reducing technical risk

·     Technological development on-track to be capable of treating superficial tumours by the end of Q3 this year

·     Science and Technology Facilities Council agreement to establish a UK testing and assembly site

·     Harley Street site building work on schedule, first patient treatment expected by the second half of 2020

·     Commercial distribution agreement with Yantai CIPU for China and other parts of Asia

·     Stronger financial position since 31^st December 2017 having secured £33.3m of financing post period end

·     Ongoing commercial discussions with sites in the USA, Europe, Asia and Middle East

Nicolas Serandour, CEO of Advanced Oncotherapy, said: “The technological development of our LIGHT system remains on-track and we continue to proceed with a significantly reduced overall technology risk profile. Similarly work at Harley Street remains on schedule and with additional funding through our licence agreement with Yantai CIPU and the equity fundraise in which they and other investors participated we enter into the second half of 2018 from a stronger position. 

“In 2018 we expect to fire a proton beam through the first CCL module and ultimately produce a beam capable of treating superficial tumours by the end of Q3 2018. The Board remain confident that we can deliver to these timescales and that we will have the financial resources to do so. On behalf of the Board, we would like to thank all of our shareholders for their continued support and belief, and we look forward to further success ahead.” 

Posting of Annual Report & Notice of AGM

The annual report for the year ended 31 December 2017 will shortly be available from the Company’s website at www.advancedoncotherapy.com and will be posted to shareholders shortly together with a notice of Annual General Meeting to be held at 2.30pm on Wednesday, 25 July 2017 at The Royal Society of Medicine, 1 Wimpole Street, London W1G 0AE. 

About Advanced Oncotherapy Plc www.avoplc.com

Advanced Oncotherapy is a provider of particle therapy with protons that harnesses the best in modern technology. Advanced Oncotherapy’s team “ADAM”, based in Geneva, focuses on the development of a proprietary proton accelerator called Linac Image Guided Hadron Technology (LIGHT). LIGHT’s compact configuration delivers proton beams in a way that facilitates greater precision and electronic control.

Advanced Oncotherapy will offer healthcare providers affordable systems that will enable them to treat cancer with an innovative technology as well as lower treatment-related side effects.

Advanced Oncotherapy continually monitors the market for any emerging improvements in delivering proton therapy and actively seeks working relationships with providers of these innovative technologies. Through these relationships, the Company will remain the prime provider of an innovative and cost-effective system for particle therapy with protons.

CHAIRMAN & CHIEF EXECUTIVE OFFICER’S REPORT

INTRODUCTION

We are delighted to report another year of significant progress in the technological development and installation of our first LIGHT system, the next generation proton therapy system for treating cancer.

In March 2017 we updated shareholders on our expected timelines for achieving certain technical milestones in the development of the LIGHT system. We are pleased to say that we have made considerable advances which not only ensure that we remain on track to deliver according to this timetable, but also that we have significantly reduced the overall technical risk of this project through the successful integration of three of the four key structures.

As a result we have ended the year in a much stronger position through both the achievement of these technological milestones and the announcement in December of a £33.3 million investment, including £16.8 million of equity investments, alongside our commercial distribution agreement with Yantai CIPU Medical Technology Co. Ltd (“Yantai CIPU”) through their affiliated company Liquid Harmony Ltd to market and sell our LIGHT systems across China and certain neighbouring geographies in Asia.  The equity funding was completed in February 2018 and we received £16.5 million from Yantai CIPU in May 2018 in respect of the distribution agreement.  Some of the funds have been used to repay loans received during 2017 which were used to help fund working capital and LIGHT development costs during 2017.

The Board are therefore confident that we will deliver a proton therapy system that will be capable of treating superficial tumours by the end of Q3 2018, a critical milestone which we believe will mark a significant inflection point for shareholder value.

OUR TECHNOLOGY AND KEY DIFFERENTIATORS

At the core of our business model, we will offer healthcare providers affordable systems that will enable them to treat cancer with an innovative proton therapy technology which offers better health outcomes for patients and lower treatment related side effects. Our LIGHT system (Linac Image Guided Hadron Technology) offers the following advantages: 

• Superior proton beam: The LIGHT system uses an innovative linear accelerator rather than a cyclotron/ synchrotron. This means that particle collision with structures within the accelerator is reduced, thus creating less radioactive energy. The results are increased safety and lower shielding requirements, reducing overall installation time and cost;
• Precision: LIGHT’s proton beam can be moved very rapidly, allowing for more accurate temporal and spatial targeting of moving tumours. Furthermore, spot scanning allows a more conformal dose that can be altered to meet individual needs, and beam energy can be adjusted at source, requiring no absorbers or energy reduction devices. This is a unique feature of linear accelerators such as LIGHT and cannot be achieved with commercially available systems;
• Compact, modular and easy to install: While other systems come in one size, LIGHT can be customised due to its modularity. This offers clinics an opportunity to expand their offering to other rooms and / or to increase system strength step by step as clinical needs develop. The fact that new modules can be added to increase output energy at any point reduces the commitment by healthcare providers to high upfront costs for systems that may not be fully utilised;
• Affordability: Due to the modular nature of the system and mass-production manufacturing, LIGHT is well positioned to compete with other proton therapy systems currently available. LIGHT is associated with lower capital, operational, and decommissioning costs;
• City-centre focus: LIGHT’s unique properties allow for implementation in existing clinical sites and densely populated areas where space is scarce. This means making the technology more accessible to patients, ensuring that as many people as possible can benefit from it;
• An integrated system: Full work-flow integration from patient intake, over treatment planning, through to beam delivery, ensures a seamless patient treatment experience.

TECHNOLOGICAL DEVELOPMENT

2017 has seen considerable advancements in the technology development and manufacture of our first LIGHT system. During the year we successfully integrated and tested the first Side Coupled Drift Tube Linac (“SCDTL”) with the Radiofrequency Quadrupole (“RFQ”) and proton source, three of the four key components of the LIGHT system. These achievements have allowed us to significantly de-risk our technological development process. In addition lower power testing of the individual accelerating SCDTL units have met expectations whilst the design of the remaining Coupled Cavity Linacs (“CCLs”) high-speed accelerating structures is well proven and documented.  

One of our key milestones for 2017 was the further development of the Patient Positioning System (“PPS”) which is designed to prepare and position patients for the high accuracy and dose sparing proton treatments produced by the LIGHT system. As already confirmed in our latest technological update the Diagnostic Quality CT scanner has been manufactured, and integration testing completed. A real time X-ray verification system has been developed, the robotic treatment chair has been successfully tested, and the scanning magnet subsystem produced. Most importantly, the connectivity between the PPS and the accelerating units has been established and successfully evaluated with system function emulation tools.

During the year we also announced that the LIGHT system’s unique ionisation chamber was received from our partner Pyramid Technical Consultants and is part of our overall safety system, monitoring beam position, spot size and dosage. More recently, at the end of May, we announced successful Time-of-Flight testing showing good results for beam control and adjustment, a key aspect of our ability to offer a system with improved precision and easy adjustment at source to offer accurate and versatile treatments.

In early May we also announced an agreement with the UK Government’s Science and Technology Facilities Council (“STFC”) to establish a UK testing and assembly site for our first operational LIGHT system, within the STFC Daresbury Laboratory in Cheshire, home to the UK’s Accelerator Science and Technology Centre. Building work is now underway to prepare the site to receive the LIGHT system components. We will retain our testing facility at CERN, Geneva where we continue to advance our LIGHT system technological development.

Our main focus now remains on the further development of the LIGHT system and to fire the proton beam through the SCDTLs and the CCL producing a beam capable of treating superficial tumours by the end of Q3 this year.

During 2017, we spent £8.4 million (2016: £8.9 million) to achieve these milestones and other LIGHT development work and this is included in Intangible Assets.  

HARLEY STREET

We are very pleased with the progress at our 141/143 Harley Street site. The sub-structural work continues to progress well and we remain on-track to create central London’s first proton therapy centre. We remain confident that the site will be completed in H1 2019 with first patient treatment expected by the second half of 2020.

The freeholder of the site, the Howard de Walden Estate, continues to bear the costs of construction. 

A time-lapse video of the construction work on site is available on our website (www.advancedoncotherapy.com) and we are updating this video as work progresses.

FUTURE PLANS FOR COMMERCIALISATION

As we’ve said before the technical development of our first LIGHT system is the key focus of the Group, however we know that we must also be mindful of the commercial opportunities available once this is completed. We must prepare ourselves to respond to the huge worldwide medical need for access to an affordable proton therapy technology that can be easily installed and safely operated in areas of high patient population density.

Due to the nature of our game-changing technology and its key differentiators (as outlined above) we continue to receive substantial interest in the LIGHT system. In the UK we are continuing discussions for a second site in Birmingham, and we remain in ongoing discussions regarding a number of sites in the USA and others across in Europe, Asia and the Middle East.

We have long recognised that China represents a significant opportunity for our technology given the potential need for a significant number of proton therapy centres. Yantai CIPU have already identified 11 potential installation sites for the LIGHT system. We remain confident that there will be a high demand for our LIGHT system given that precision medicine has been listed as one of the strategic industries to receive support in the People’s Republic of China’s 13th Five-Year Plan for economic and social development (2016-20).

In addition, we expect to work with Yantai CIPU to explore opportunities to manufacture parts of the LIGHT system in selected geographic areas and the Board believes the Group will benefit greatly from the knowledge and contacts of the Han family, who ultimately owns Yantai CIPU. 

From our current commercial engagements and in discussion with key partners, such as Yantai CIPU, we have observed that the commercial focus of potential customers is on a technology partner that is able to provide an entire solution and not just a standalone medical equipment device isolated from other considerations such as building or financing. Customers are looking for a seamless integration of accelerator and treatment equipment; they are keen to speak to one team who will mobilise the relevant resources from a marketing, service, maintenance, technical and medical expertise; and the solution needs to consider their financial constraints. We are looking to establish additional partnerships like that with Yantai CIPU which allows us to respond to these customer needs. We are also assessing various opportunities for providing vendor financing to our prospective customers to ensure that we not only compete in terms of technology and costs, but also on our ability to provide a whole fully integrated solution.

FINANCING

In July 2017, we announced that a consortium led by one of our longstanding investors, AB Segulah, provided additional financing to the Group through a £3.9 million loan facility. At the same time we agreed with Bracknor to waive the requirement for the Group to drawdown the minimum of 10 convertible loan note tranches and declared that the Group would not intend to use the Bracknor facility in the future. Shares were issued in February 2018 to settle the loans. It was announced in May 2018 that all outstanding loan notes previously drawn down by the Company, as well as the conversion and commitment fees, were satisfied by the issue of new shares simultaneously placed to a Singaporean family office. 

The support shown by our Swedish investors during the year allowed us to approach long-term financing options from a stronger position, and so in December we also announced that Yantai CIPU, in addition to providing local knowledge and contacts, would make a significant equity investment in the Group.

Alongside Yantai CIPU’s subscription other investors agreed to subscribe for shares and we raised a total of £16.8 million before expenses. As part of this process we reached an agreement with the consortium to accept repayment of their loan in return for the issue of conversion shares.

Our Board wanted to ensure that dilution of existing shareholders was limited and with this in mind the agreement with Yantai CIPU was structured in such a way that we will benefit from the additional non-dilutive source of funding through the £16.5 million licence fee.

We are also greatly encouraged to see the extent of support from our Board as part of the Subscription and Placing and the degree to which they continued to purchase shares in the Group throughout last year and also the support of a new long-term shareholder M3T PTE Ltd with whom the remaining shares due to Bracknor were placed at the end of last month.

The conclusion of these investments has provided the funding foundations necessary for us to focus on making our proton therapy technology available to patients around the world and to progress towards the production and installation of our first LIGHT system in Harley Street, London.

FINANCIALS

The Group recorded a comprehensive loss of £14.7 million in the year ended 31 December 2017 (2016: £8.7 million), with shareholder funds as at 31 December of £28.7 million (2016: £34.0 million).

Cash and cash equivalents at the year-end were £56,479 (2016: £1,448,524), although these year-end figures do not take into account the post period financing agreements referred to above which have improved the liquidity of the Company.

In February 2018, the Group raised additional equity of £20.9 million through subscriptions, placings and the conversion of debt.  As detailed in a circular dated 22 December 2017, included in this was a subscription for £13.5 million by Yantai CIPU.    

In addition to this, the Group entered into an exclusive distribution agreement with Yantai CIPU to market and sell Advanced Oncotherapy’s LIGHT system across China, Macau, Taiwan, Hong-Kong and South Korea. Under the agreement, Yantai CIPU made a payment of £16.5 million to the Group, of which the final £10 million have been received in May 2018, completing the total £30 million investment from Yantai Cipu.                

Finally, the Group announced in May 2018 that it repaid all the loan made to the Company by Henslow Trading Limited. As a result, all the assets of the Group are now free of any security arrangement. 

SCIENTIFIC AND OPERATIONAL EXPERTISE

We have worked hard this year to ensure that we had the best scientific and operational expertise at a Board level to aid us in our dual focus of completing the technological development of the LIGHT system and developing channels for future commercial roll-out of our technology.

During the year we appointed three Non-Executive Directors who bring considerable experience and expertise to our Board: Professor Steve Myers’ who is also Executive Chairman of our fully owned subsidiary, ADAM S.A., held previous roles as Director of Accelerators and Technology at CERN; Hans von Celsing, who has considerable experience in the business development of both radiation and proton therapy companies; and Dr. Nick Plowman a key opinion leader in radiation oncology technology and clinical oncologist at St Bartholomew’s Hospital and Great Ormond Street Hospital. 

In addition, the senior management team was reinforced by Ed Lee, who joined as Chief Operating Officer. Ed joined from Optivus Proton Therapy at Loma Linda University, site of the world’s first and longest running commercial proton therapy centre. Dr. Jonathan Farr also joined us from the St Jude Children’s Research Hospital, a world-renowned institution in paediatric oncology, as Director of Medical Physics. 

OUTLOOK

We know that there are millions of patients worldwide who could potentially benefit from, and deserve to have, access to the very best affordable, precision adaptive proton therapy technology. We believe strongly that it is unacceptable that they should have to settle for less than that.

We believe we are ideally placed to address this need given the LIGHT system’s modularity and linear design which lends itself naturally to mass production, shorter manufacturing lead times, easier installation/commissioning and a technology that not just offers significant cost advantages, but clinical advantages too.

The technological development of our LIGHT system remains on-track and we continue to proceed with a significantly reduced overall technology risk profile. Similarly work at Harley Street remains on schedule and with additional funding through our licence agreement with Yantai CIPU and the equity fundraise in which they and other investors participated we enter into the new financial year from a strong position.

In 2018 we expect to produce a beam capable of treating superficial tumours by the end of Q3 2018. The Board remain confident that we can deliver to these timescales. On behalf of the Board, we would like to thank all of our shareholders for their continued support and belief, and we look forward to further success ahead.

Compact, modular and easy to install: While other systems come in one size, LIGHT can be customised due to its modularity. This offers clinics an opportunity to expand their offering to other rooms and / or to increase system strength step by step as clinical needs develop. The fact that new modules can be added to increase output energy at any point reduces the commitment by healthcare providers to high upfront costs for systems that may not be fully utilised;