Nordic sales bounce back

Photocure 25 May 2016 Update

Photocure

Nordic sales bounce back

Quarterly update

Pharma & biotech

25 May 2016

Price

NOK42.5

Market cap

NOK913m

NOK8.36/US$

Net cash (NOKm) at 31 March 2016

121

Shares in issue

21.4m

Free float

88%

Code

PHO

Primary exchange

Oslo

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.4)

13.2

2.6

Rel (local)

1.0

10.8

18.9

52-week high/low

NOK46

NOK33

Business description

Photocure specialises in photodynamic therapy. Its bladder cancer imaging product is sold as Hexvix in Europe and Cysview in the US. Photocure 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

Partnership deals

2016

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Photocure is a research client of Edison Investment Research Limited

Photocure announced the second quarter of record sales, NOK33.5m or 18% growth year-on-year and 26% growth in Hexvix/Cysview sales. The growth was on the back of an increase of 20% in unit sales and 23% in revenue from the Nordic region, which marks a return to growth in the region following a slow (5% unit loss) Q415. Sales were further supported by a continued increase in US market share with a 37% increase in unit sales and a 66% increase in revenue.

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/14

129.0

1.5

0.07

0.0

N/A

N/A

12/15

134.7

(17.4)

(0.82)

0.0

N/A

N/A

12/16e

143.7

(11.7)

(0.54)

0.0

N/A

N/A

12/17e

166.8

1.9

0.09

0.0

N/A

N/A

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

Eight more blue light cystoscopy units placed in US

US penetration continues, with eight more blue light cystoscopy units placed in bladder cancer screening facilities during the quarter, bringing the total to 73. Photocure also reported an increased rate of same user sales, bringing the constant currency growth rate to 49%.

Hexvix/Cysview added to bladder cancer guidelines

In April 2016, American Urological Association and the Society of Urological Oncology added the use of blue light cystoscopy and Hexvix/Cysview to their 2016 guidelines for the management of non-muscle invasive bladder cancer. The guidance cited the increased detection and decreased recurrence rate.

Canada and Australia on deck

This quarter marks the first revenue associated with licensing outside of Europe as the company delivered its first units to support the launch of Hexvix/Cysview in Canada with its partner BioSyent. The full commercial launch will begin in Q2/Q316, followed closely behind by approval in Australia by partner Juno Pharmaceuticals, which is expected in Q416.

Valuation: NOK1,591m or NOK74 per basic share

We have increased our valuation to NOK1,591m or NOK74 per basic share (NOK72 per diluted share) from NOK1,499m or NOK70 per basic share (NOK67 per diluted share). The increase is largely due to the inclusion of Canadian, Australian, and New Zealand royalty streams, as well as advancing our NPV. The company ended Q116 with NOK121m in cash. We do not expect the company to need additional financing, but this in part depends on milestones and royalties from Cevira and Visonac, which currently remain unpartnered.

Nordic growth back in full force

Photocure is a pharmaceutical and diagnostic company that has developed a series of photoactive compounds for the detection and treatment of different disorders. The company’s lead product is bladder cancer diagnostic agent hexaminolevulinate hydrochloride (HAL) known in Europe as Hexvix and in North America as Cysview. The compound is metabolized selectively in cancer cells into fluorescent compounds that can be detected using a blue light source (blue light cystoscopy), thereby enabling the improved detection of cancerous lesions in the bladder and a lower rate of recurrence following resection. The company has historically had a strong presence in the Nordic countries where it maintains a 40% market share, but near-term growth is largely driven by expansion into the US. The product is marketed in the rest of the EU through the company’s partner, Ipsen. A Phase III trial is currently ongoing examining Hexvix/Cysview in previously diagnosed patients to screen for additional recurrence or progression of bladder cancer. It is currently only approved for use during surgical procedures. Results from the trial are expected in 2017.

Recently in May 2016, Hexvix/Cysview was added to the guidelines for the management of non-muscle invasive bladder cancer presented by the American Urological Association and the Society of Urological Oncology. The organisations cited both the improved detection rates and the lower rate of recurrence as reason for inclusion.

The company also has two Phase III ready programs utilizing photoactivatable drug/device combinations. Cevira is an insertable light source paired with a photoactivatable gel used for the treatment of cervical dysplasia. It has demonstrated significant efficacy in patients with high-grade squamous intraepithelial lesions. The other product is Visonac, a treatment for inflammatory acne using a face mask and a lamp. Visonac has the potential to treat patients that are resistant to isotretinoin or oral antibiotics. The company is seeking partners to develop both products.

Q116 earnings

Hexvix/Cysview sales remain strong and Q116 marks the second consecutive quarter of record breaking sales (NOK33.5m), albeit on low (1%) sequential growth. Historically, Q4 has been the strongest quarter, so the low sequential growth may be in part due to seasonal effects, although the company has cited a reduced seasonality in the Nordic region during the past twelve months. Total sales revenue growth (including API) year-on-year was 18% for the quarter compared to 34% for Q415.

Exhibit 1: Hexvix/Cysview growth rates year-on-year by region

(%)

Revenues

Unit sales

Region

Q415

Q116

Q415

Q116

Nordic

13

23

-5

20

EU

34

14

9

2

US

95

65

41

37

Global in-market

22

19

8

7

Source: Photocure

Sales in the Nordic region grew 23% for the quarter, supported by 20% increase in unit sales, compared to a 5% reduction in unit sales in Q415. This increase, and the corresponding reduction in unit sales for Q415, is largely linked to the reduced seasonality effect described by the company. Sales in this region have been shifting away from Q4 being the strongest toward steady growth. Sweden continues to be the strongest growth market in the region with a 32% increase in unit sales (compared to 17% for Q415).

EU sales reported by the company’s partner Ipsen continue to grow, albeit at a slower rate than expected. Revenue grew 14% for the quarter, but only 4% in constant currency. Unlike previous slow quarters for the region that were caused by inventory drawdowns at Ipsen, this slowing of growth appears to be organic as there was only a 2% increase in end-user unit sales year-on-year.

We expect revenue from partnerships to regain an upward trajectory later in this year due to the upcoming launches in Canada with partner BioSyent and in Australia and New Zealand with Juno Pharmaceuticals. The launch in Canada is planned for Q2/Q316 and approval in Australia is expected in Q416. Q116 revenue represents a small delivery of product to BioSyent in advance of the launch. The company is also evaluating partnerships in Russia.

The US once again proved to be the strongest growth market for Hexvix/Cysview with a 65% increase in revenue. Although unit sales growth decreased slightly from 41% in Q415 to 37% for the current period, revenue on a constant currency basis was up (49% in Q116 compared to 46% in Q415). However, as in previous quarters net currency effects were small with increases in development costs offsetting increased revenue. The net effect of currency for the quarter across the whole company was NOK1.0m. US market expansion was driven by both the increase in sales from existing accounts as well as the placement of new blue light cystoscopes into eight clinics.

Valuation

We have increased our valuation of Photocure to NOK1,591m or NOK74 per basic share (NOK72 per diluted share), from NOK1,499m or NOK70 per basic share (NOK67 per diluted share). The reason for the increase is largely associated with the inclusion of the new Canadian and Australian/New Zealand partnerships and is associated with approximately NOK40m in value. We currently model a 30% royalty in these regions. We predict peak penetration in the 30-33% range before patent expiry because of the favourable reimbursement environments in these countries. Otherwise, besides advancing our NPVs, our model is unchanged.

Exhibit 2: Photocure valuation

Product

Main Indication

Status

Probability of commercialisation

Launch year

Peak sales (NOKm)

Patent protection

Economics

rNPV (NOKm)

Hexvix/Cysview

Bladder cancer detection

Market

100%

Launched

387

2019-20

Fully owned - US and Nordics, Partner with Ipsen in EU (35% royalty), Partner with BioSyent in Canada (30% royalty), Partner with Juno in Aus/NZ (30% royalty)

690

Cevira

HPV-related diseases

Phase III

50%

2020

2,399

2030

17.5%

365

Visonac

Acne

Phase III

60%

2020

2,175

2028

17.5%

415

Total

 

 

 

 

 

 

 

1,470

Cash and cash equivalents (Q116)

121

Total firm value

1,591

Total basic shares (m)

21.5

Value per basic share (NOK)

74

Options (Q415, m)

0.8

Total number of shares (m)

22.2

Diluted value per share (NOK)

72

Source: Edison Investment Research, company reports

Financials

The company generated NOK34.9m in revenue during Q116 resulting in an EBIT loss of NOK4.9m. The company substantially reduced R&D spending for the quarter (NOK5.6m compared to NOK710m during 2015). SG&A spending was in line with the previous quarter at NOK32.4m. The company reported earnings of NOK1.7m due to a NOK3.6m tax benefit. Cash flows were a negative NOK13.4m largely due to increases in working capital and capex on intangible assets. The company ended the quarter with NOK121m in cash and equivalents, which will be further supplemented by the final payment of €4m from Galderma for the acquisition of Metvix in Q416. We believe that this cash will be sufficient to bring the company to profitability in 2018 following the label expansion of Hexvix/Cysview to bladder cancer screening. We do not expect the company to need additional financing, but the absence of partners for Cevira and Visonac presents a degree of uncertainty regarding development costs and ultimate revenue potential.

Exhibit 3: Financial summary

NOK'000s

2012

2013

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

133,823

83,616

128,952

134,717

143,684

166,844

Cost of Sales

(9,405)

0

(6,996)

(8,221)

(10,831)

(13,085)

Gross Profit

124,418

83,616

121,956

126,496

132,853

153,759

Sales, General and Administrative Expenses

(113,583)

(114,657)

(95,032)

(117,136)

(126,507)

(132,832)

Research and Development Expense

(50,083)

(33,976)

(32,554)

(31,337)

(22,799)

(23,939)

EBITDA

 

 

(39,248)

(71,846)

(5,630)

(21,977)

(16,453)

(3,012)

Operating Profit (before GW and except.)

(39,248)

(71,846)

(5,630)

(21,977)

(16,453)

(3,012)

Intangible Amortisation

0

0

0

0

0

0

Other

0

0

0

0

0

0

Exceptionals

0

(3,694)

0

0

0

0

Operating Profit

(39,248)

(75,540)

(5,630)

(21,977)

(16,453)

(3,012)

Net Interest

8,236

8,688

7,157

4,547

4,729

4,918

Other

(11,356)

(14,015)

(15,573)

(9,772)

0

0

Profit Before Tax (norm)

 

 

(31,012)

(63,158)

1,527

(17,430)

(11,724)

1,906

Profit Before Tax (FRS 3)

 

 

(42,368)

(80,867)

(14,046)

(27,201)

(11,724)

1,906

Tax

890

8,204

(0)

0

0

0

Deferred tax

0

0

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(30,122)

(54,954)

1,527

(17,430)

(11,724)

1,906

Profit After Tax (FRS 3)

(41,478)

(72,663)

(14,046)

(27,201)

(11,724)

1,906

Average Number of Shares Outstanding (m)

21.3

21.2

21.3

21.4

21.6

21.8

EPS - normalised (NOK)

 

 

(1.42)

(2.59)

0.07

(0.82)

(0.54)

0.09

EPS - FRS 3 (NOK)

 

 

(2.79)

(3.44)

(0.66)

(1.27)

(0.54)

0.09

Dividend per share (NOK)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

104,902

104,759

76,512

76,394

74,626

94,764

Intangible Assets

59,951

51,969

42,393

50,615

47,573

69,639

Tangible Assets

4,111

3,681

3,056

2,288

(84)

(2,012)

Other

40,840

49,109

31,063

23,490

27,137

27,137

Current Assets

 

 

328,076

197,020

194,067

171,670

154,708

131,278

Stocks

9,826

12,624

13,237

13,800

15,693

18,262

Debtors

15,432

17,085

15,585

23,844

20,928

24,355

Cash

302,818

167,258

165,245

134,026

105,528

76,102

Other

0

53

0

0

12,559

12,559

Current Liabilities

 

 

(51,089)

(30,307)

(27,466)

(34,039)

(31,075)

(31,075)

Creditors

(51,089)

(30,307)

(27,466)

(34,039)

(31,075)

(31,075)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(1,621)

(2,296)

(3,055)

(3,960)

(4,356)

(4,792)

Long term borrowings

0

0

0

0

0

0

Other long term liabilities

(1,621)

(2,296)

(3,055)

(3,960)

(4,356)

(4,792)

Net Assets

 

 

380,268

269,176

240,058

210,064

193,903

190,175

CASH FLOW

Operating Cash Flow

 

 

(54,927)

(99,722)

(6,089)

(21,030)

(219)

(1,774)

Net Interest

0

0

0

0

0

0

Tax

0

0

0

0

0

0

Capex

0

0

(748)

(14,930)

(31,684)

(30,170)

Acquisitions/disposals

0

0

0

0

0

0

Financing

0

0

0

0

0

0

Dividends

0

0

0

0

0

0

Other

9,073

4,518

4,138

2,326

2,421

2,518

Net Cash Flow

(45,854)

(95,204)

(2,699)

(33,634)

(29,482)

(29,426)

Opening net debt/(cash)

 

 

(355,173)

(302,818)

(167,258)

(165,245)

(134,026)

(105,528)

HP finance leases initiated

0

0

0

0

0

0

Exchange rate movements

(1)

0

(1)

2

0

0

Other

(6,500)

(40,356)

687

2413

984

0

Closing net debt/(cash)

 

 

(302,818)

(167,258)

(165,245)

(134,026)

(105,528)

(76,102)

Source: Company accounts/Edison Investment Research

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