A strong quarter

Photocure 28 May 2019 Update
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Photocure

A strong quarter

Financial update

Pharma & biotech

28 May 2019

Price

NOK49

Market cap

NOK1068m

NOK8.73/US$

Net cash (NOKm) at 31 March 2019

91

Shares in issue

21.8m

Free float

75.2%

Code

PHO

Primary exchange

Oslo

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

11.2

(3.7)

65.8

Rel (local)

16.7

(0.8)

75.1

52-week high/low

NOK63.50

NOK27.10

Business description

Photocure specialises in photodynamic therapy. Its bladder cancer imaging product is sold as Hexvix in Europe and Cysview in the US. It handles the marketing in Nordic countries and the US, while Ipsen is its marketing partner in the EU. Cevira is a Phase III-ready product for HPV-related diseases of the cervix and Visonac is a Phase III-ready product for acne.

Next events

Updates on US growth

2019

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Photocure is a research client of Edison Investment Research Limited

Photocure has announced results for Q119, with 26% revenue growth compared to Q118. Revenues grew strongly in the US, where Hexvix/Cysview sales increased 66% over the same quarter in the previous year and 15% sequentially. This was driven mainly by improved reimbursement and a higher installed base of blue light cystoscopes. There are now 171 installed cystoscopes in the US, 14 more than at the end of 2018 and 67 more than at the beginning of 2018.

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/17

150.9

(41.6)

(1.61)

0.0

N/A

N/A

12/18

181.5

(22.5)

(1.04)

0.0

N/A

N/A

12/19e

241.2

8.8

0.28

0.0

175.0

N/A

12/20e

294.8

61.1

2.02

0.0

24.3

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Continued strong US growth

Q119 sales in the US increased 66% to NOK21.2m. This was helped by volume growth, a strong US dollar and increased prices. In US dollar terms, sales were up 52% compared to last year and unit sales increased 44% during the quarter. The total installed base of blue light cystoscopes (both rigid and flexible) increased to 171, up 64% from the 104 installed at the beginning of 2018.

Improved reimbursement helping US growth

One of the reasons for the strong US growth has been improved reimbursement. Thanks to a decision by the US Centers for Medicare and Medicaid Services (CMS), effective from 1 January 2019, there is a new code that covers blue light cystoscopy with Hexvix/Cysview when used in physician offices and other sites. CMS also continued a specific complexity adjustment for certain procedures in hospital outpatient departments. As 73.4% of bladder cancer patients are over 65 (according to the National Cancer Institute) and hence covered by Medicare, obtaining improved reimbursement from CMS is especially important.

Partner and Nordic sales growing

Nordic revenues were up 8% in Q119 and unit sales were up a strong 13% especially in Denmark where they were up 30%. Partner revenue increased 7% in the first quarter, mainly due to higher prices and beneficial moves in exchange rates. Unit sales were approximately flat compared with last year (up 0.3%), with growth coming mainly from Germany.

Valuation: NOK1,256m or NOK58 per share

We have increased our valuation from NOK1,246m or NOK57 per basic share to NOK1,256m or NOK58 per basic share. The increase was mainly due to rolling forward our NPVs and was partially offset by a lower level of cash. With NOK91m in cash, Photocure should have enough capital to meet its needs, as we continue to expect profitability in 2019.

Q119 results

Photocure reported revenue of NOK52.2m for Q119, representing 26% growth over Q118, an acceleration compared to the 20% growth seen in 2018. Sales in the US continued to be strong, up 66% compared to Q118 (up 52% in US dollar terms), while sales in the US were up 15% sequentially. End-user unit sales were also strong, growing 44% for the quarter compared to last year, driven in part by an increase in the number of permanent blue light cystoscopes installed (currently 171, up from 157 at the beginning of 2019 and 104 at the beginning of 2018).

Revenues in the Nordic region increased 8% to NOK13.1m, but were down 3% sequentially. Unit sales were up a strong 13%, especially in Denmark where they were up 30%, although this was partially due to weakness in the Danish hospital market earlier last year. Denmark is the company’s most successful market, where it estimates it has almost 75% market penetration (as opposed to the US where it has low single-digit penetration, leaving plenty of room to grow in that market).

Results in partnered areas increased 7% to NOK17.0m in the quarter compared to the same quarter last year and were up 18% compared to Q418. Unit sales were approximately flat compared with last year (up 0.3%), with growth mainly coming from Germany, which balanced out the declines in other countries.

SG&A for Q1 was up 19% to NOK47.3m compared with last year, but up only 0.8% sequentially. As a reminder, the company is increasing the number of customer-facing roles by 50% in the US over the course of this year, which will allow it to cover 75% of the metropolitan areas in the US and more than 750 accounts (up from 525 as of the Q418 results announcement). We believe this will mainly be achieved through repositioning current headcount. R&D expenses remained under control at NOK1.0m, down 61% compared to Q118, as the regulatory work surrounding FDA approval for the surveillance market has now been completed. EBITDA for the company was a loss of NOK1.5m, an improvement over the NOK4m loss in Q118. The commercial segment had positive EBITDA of NOK1.7m, an improvement over the NOK0.9m in EBITDA for the franchise seen in the same quarter last year.

Valuation

We have increased our valuation from NOK1,246m or NOK57 per basic share to NOK1,256m or NOK58 per basic share. The increase was mainly due to rolling forward our NPVs and was partially offset by a lower level of cash. Cash fell by NOK15.4m, largely due to a NOK12.5m change in working capital, which offset a NOK11.9m working capital inflow in Q418 (the inflow temporarily made the company cash flow positive last quarter).

Exhibit 1: Photocure valuation table

Product

Main indication

Status

Probability of commercialisation

Launch year

Peak sales
(NOKm)

Peak year

Economics

rNPV (NOKm)

Hexvix/Cysview

Bladder cancer detection

Market

100%

Launched

383

2024

Fully owned - US and Nordics, Partner with Ipsen in EU (35% royalty)

1,165

Total

 

 

 

 

 

 

 

1,165

Cash and cash equivalents (Q119)

91

Total firm value

1,256

Total basic shares (m)

21.8

Value per basic share (NOK)

58

Options (Q119, m)

0.1

Total number of shares (m)

21.9

Diluted value per share (NOK)

57

Source: Edison Investment Research

Financials

We have increased our revenue estimate for 2019 slightly to NOK241.2m from NOK240.1m, but have kept 2020 the same. Cost of goods sold has been running a little higher than we expected, and we have therefore increased our estimate by NOK5.7m for 2019 and by NOK3.1m for 2020. We have also increased our SG&A estimates by NOK9.2m for 2019 and NOK9.6m for 2020 due to the high run rate of spending and our expectation that the company will continue to increase its investment in the US market. Conversely, we have lowered R&D by NOK5.6m for 2019 and NOK5.8m for 2020 as spending has been much lower than expected, and focused mainly on intellectual property and some regulatory work. The company ended Q119 with NOK91m in cash, and we do not expect it to require further financing as we continue to forecast profitability in 2019.

Exhibit 2: Financial summary

NOK'000s

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

150,911

181,510

241,226

294,796

Cost of Sales

(12,011)

(17,147)

(22,519)

(23,773)

Gross Profit

138,900

164,362

218,708

271,023

Sales, General and Administrative Expenses

(149,098)

(165,530)

(191,305)

(198,957)

Research and Development Expense

(22,896)

(9,325)

(4,128)

(4,293)

EBITDA

 

 

(33,094)

(10,492)

24,119

67,773

Operating Profit (before amort. and except.)

(45,202)

(23,703)

9,597

61,964

Intangible Amortisation

0

0

0

0

Other

0

0

0

0

Exceptionals

0

(14,199)

0

0

Operating Profit

(45,202)

(37,902)

9,597

61,964

Net Interest

3,622

1,187

(786)

(817)

Other

0

0

0

0

Profit Before Tax (norm)

 

 

(41,580)

(22,516)

8,811

61,147

Profit Before Tax (FRS 3)

 

 

(41,580)

(36,715)

8,811

61,147

Tax

6,883

6

(2,698)

(16,510)

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(34,697)

(22,510)

6,114

44,637

Profit After Tax (FRS 3)

(34,697)

(36,709)

6,114

44,637

Average Number of Shares Outstanding (m)

21.6

21.6

21.9

22.1

EPS - normalised (ore)

 

 

(161)

(104)

28

202

EPS - FRS 3 (ore)

 

 

(161)

(170)

28

202

Dividend per share (ore)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

87,486

77,767

76,142

71,346

Intangible Assets

33,315

22,502

9,794

3,536

Tangible Assets

1,268

2,141

2,926

4,387

Other

52,903

53,124

63,423

63,423

Current Assets

 

 

175,613

153,429

167,286

217,924

Stocks

19,552

18,582

18,630

34,032

Debtors

14,573

20,371

26,584

29,480

Cash

129,368

106,833

111,219

143,561

Other

12,119

7,643

10,852

10,852

Current Liabilities

 

 

(40,267)

(52,453)

(48,551)

(48,551)

Creditors

(40,267)

(52,453)

(48,551)

(48,551)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(4,752)

(2,401)

(12,056)

(13,261)

Long term borrowings

0

0

0

0

Other long term liabilities

(4,752)

(2,401)

(12,056)

(13,261)

Net Assets

 

 

218,079

176,342

182,821

227,459

CASH FLOW

Operating Cash Flow

 

 

(23,593)

(24,124)

5,608

33,355

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(18,588)

(2,188)

(1,517)

(1,578)

Acquisitions/disposals

0

0

0

0

Financing

0

6,339

0

0

Dividends

0

0

0

0

Other

2,310

(2,562)

296

565

Net Cash Flow

(39,871)

(22,536)

4,387

32,342

Opening net debt/(cash)

 

 

(169,239)

(129,368)

(106,833)

(111,219)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

0

1

-1

0

Closing net debt/(cash)

 

 

(129,368)

(106,833)

(111,219)

(143,561)

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Photocure and prepared and issued by Edison, in consideration of a fee payable by Photocure. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Photocure and prepared and issued by Edison, in consideration of a fee payable by Photocure. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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