Phase III surveillance trial successful

Photocure 18 May 2017 Update
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Photocure

Phase III surveillance trial successful

Clinical results

Pharma & biotech

18 May 2017

Price

NOK31.00

Market cap

NOK668m

NOK8.47/US$

Net cash (NOKm) at 31 December 2016

169

Shares in issue

21.6m

Free float

84.98%

Code

PHO

Primary exchange

Oslo

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.2)

(17.6)

(27.6)

Rel (local)

(9.7)

(23.4)

(38.4)

52-week high/low

NOK54.0

NOK27.5

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 event

Surveillance market launch

2018

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Photocure is a research client of Edison Investment Research Limited

Photocure presented the findings of from its Phase III clinical trial of Hexvix/Cysview for bladder cancer surveillance at the American Urological Association annual meeting. These results showed that the product increased the detection of patients with recurrence by 21.5% (p<0.0001). In particular, detection of carcinoma in situ was improved by 34.6% (p<0.0001). We believe these data are supportive of marketing authorisation for the bladder cancer surveillance market.

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/15

134.7

(17.4)

(0.82)

0.0

N/A

N/A

12/16

143.6

12.8

0.59

0.0

N/A

N/A

12/17e

144.0

(42.9)

(1.98)

0.0

N/A

N/A

12/18e

242.5

9.1

0.42

0.0

N/A

N/A

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

Hexvix/Cysview catches more recurrences

The clinical trial enrolled 304 patients with non-muscle invasive bladder cancer that were considered a high risk of recurrence and underwent both white light and blue light cystoscopy with Hexvix/Cysview. Of these, 220 were in the experimental portion of the trial and evaluable for efficacy. 33 more referrals for resection (of 103 total) were made on the basis of blue light cystoscopy and 14 more patients with recurrence were identified (of 65 total) that would have otherwise been missed.

…and more tumours total

Blue light cystoscopy with Hexvix/Cysview improved cancer detection by all metrics. The 34.6% improvement in the detection of carcinoma in situ is significant because these lesions are flat and difficult to identify using white light, but frequently develop into malignant masses. Additionally, 46.2% of patients with cancer had more lesions identified with the addition of blue light cystoscopy, which we expect to translate into better long-term outcomes.

Surveillance market at over 1.2m in US

Hexvix/Cysview is currently approved for transurethral resection of the bladder (TURB) of which there are approximately 250,000 procedures in the US and 300,000 in Europe per year. After resection, however, patients are recommended to undergo frequent surveillance: every three months for the first three years and yearly thereafter. There are 1.2m surveillance cystoscopies in the US and 750,000 in Europe per year, presenting a significant growth opportunity.

Valuation: Increased to NOK943m or NOK44

We have increased our valuation to NOK943m or NOK44 per basic share from NOK886m or NOK41 per basic share due to an increase in our peak sales estimates for Hexvix/Cysview to NOK344m from NOK324m. We expect approval for the US surveillance market and profitability in 2018. The company ended Q416 with NOK169m in cash, and we do not expect it to require further financing.

Improving bladder cancer surveillance

Photocure presented new clinical results of Hexvix/Cysview at the American Urological Association (AUA) meeting on 14 May 2017. The results are from the Phase III clinical study measuring the utility of Hexvix/Cysview for the ongoing surveillance of patients with non-muscle invasive bladder cancer (NMIBC). After diagnosis, patients with NMIBC typically undergo a transurethral resection of the bladder (TURB) procedure, in which tumours are resected using a cystoscope. Hexvix/Cysview is already approved for use during TURB procedures to improve the identification of lesions for removal. These patients are then followed with routine surveillance for recurrence, which is high with NMIBC. The American Urological Association recommends surveillance every three to six months for the first three years after diagnosis and yearly thereafter.

The clinical trial enrolled 304 patients at 17 institutions in the US. It only enrolled patients with a high probability of recurrence as identified by having multiple tumours, a previous recurrence, and/or high grade tumours in previous procedures. Patients on the study underwent both blue light and white light cystoscopy and the ability of the two techniques to identify recurrence events was compared. The primary endpoint of the trial was the number of patients with recurrences that were identified using Hexvix/Cysview that were missed with white light cystoscopy. In addition to the experimental portion of the trial, 68 patients were included for training purposes to acclimate physicians to blue light cystoscopy.

A total of 220 patients were in the experimental portion of the trial and available for evaluation. From this population, 103 patients were referred to the operating room for a TURB procedure based on initial surveillance cystoscopy, and 65 had a confirmed recurrence. 14 patients (21.5% p<0.0001) were referred to the operating room using Hexvix/Cysview and would have been missed using white light cystoscopy alone. This is significant evidence that Hexvix/Cysview can improve the surveillance in this population. Moreover, of these 65 patients with recurrence, almost half (30 patients, 46.2%) had more lesions detected using Hexvix/Cysview than white light cystoscopy. In particular, Hexvix/Cysview improved the identification of carcinoma in situ (CIS). CIS is a small flat lesion in the early stages of its growth before it is generally considered a tumour. Of the patients on the trial 26 had confirmed CIS, of which nine (34.6%, p<0.0001) were diagnosed with Hexvix/Cysview and would have otherwise been missed.

The use of Hexvix/Cysview did substantially increase the number of false positive diagnoses of recurrence. It doubled the number of patients from 19 to 38 (8.6% to 17.2%) that were referred for TURB that turned out to not have a malignancy. The total number of patients referred for TURB increased by 47% (from 70 to 103) when using Hexvix/Cysview; however, we consider this increase in procedures justified considering that 42% of the new referrals had disease that would have otherwise been missed.

We believe that these data are supportive of approval for the US surveillance market.

Exhibit 1: Blue light cystoscopy with Hexvix/Cysview increases bladder cancer detection

Source: Photocure

Expansion into the surveillance market is essential to the continued growth of Hexvix/Cysview, particularly in the US. The product is currently approved in the US and Europe for Transurethral resection of the bladder (TURB), of which there are approximately 250,000 and 300,000 respective procedures annually. However, surveillance procedures are far more common than TURB, with approximately 1.2m procedures in the US and 750,000 in Europe per year.

Valuation

We have increased our valuation to NOK943m or NOK44 per basic share from NOK886m or NOK41 per basic share due to an increase in our peak sales estimates for Hexvix/Cysview. We have a higher degree of confidence in the performance of the product in the US market on the basis of the surveillance clinical trial data, and we have increased our peak sales estimates for the product to NOK344m from NOK324m. We currently forecast US approval for the surveillance market in 2018. We may adjust our valuation in the future to reflect the initial sale trajectory of the product as well as changes to spending associated with new marketing.

Exhibit 2: Valuation of Photocure

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

344

2019-20

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

525

Cevira

HPV-related diseases

Phase III

20%

2020

2,399

2030

17.5%

133

Visonac

Acne

Phase III

20%

2020

2,175

2028

17.5%

115

Total

 

 

 

 

 

 

 

773

Cash and cash equivalents (Q416)

169

Total firm value

943

Total basic shares (m)

21.6

Value per basic share (NOK)

44

Options (Q416, m)

0.1

Total number of shares (m)

21.7

Diluted value per share (NOK)

43

Source: Photocure reports, Edison Investment Research


Financials

Our new financials reflect our adjustment to the new sales trajectory for Hexvix/Cysview in the US. We have increased our 2018 sales estimate to NOK242m from NOK231m, and carry this increase forward. We now expect that the company will become profitable in 2018 (compared to previous forecasts of 2019), although we expect cash flows to be negative until 2019. The company ended 2016 with NOK169m in cash, and we do not expect it to require additional capital.

Exhibit 3: Financial summary

NOK'000s

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

134,717

143,627

143,977

242,457

Cost of Sales

(8,221)

(9,337)

(9,961)

(16,947)

Gross Profit

126,496

134,291

134,015

225,510

Sales, General and Administrative Expenses

(115,025)

(124,647)

(155,808)

(194,760)

Research and Development Expense

(29,558)

(17,652)

(18,534)

(19,276)

EBITDA

 

 

(18,087)

(8,008)

(40,327)

11,474

Operating Profit (before amort. and except)

(21,986)

(15,861)

(48,180)

3,621

Intangible Amortisation

0

0

0

0

Other

0

0

0

0

Exceptionals

0

0

0

0

Operating Profit

(21,986)

(15,861)

(48,180)

3,621

Net Interest

4,553

28,640

5,272

5,483

Other

(9,771)

(366)

0

0

Profit Before Tax (norm)

 

 

(17,434)

12,779

(42,908)

9,104

Profit Before Tax (FRS 3)

 

 

(27,205)

12,414

(42,908)

9,104

Tax

0

(0)

0

0

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(17,434)

12,779

(42,908)

9,104

Profit After Tax (FRS 3)

(27,205)

12,413

(42,908)

9,104

Average Number of Shares Outstanding (m)

21.4

21.5

21.7

21.9

EPS - normalised (ore)

 

 

(82)

59

(198)

42

EPS - FRS 3 (ore)

 

 

(127)

58

(198)

42

Dividend per share (NOK)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

76,394

74,070

96,127

89,875

Intangible Assets

50,615

26,390

48,706

42,584

Tangible Assets

2,288

1,660

1,401

1,272

Other

23,490

46,020

46,020

46,020

Current Assets

 

 

171,670

212,268

162,945

180,086

Stocks

13,800

17,955

16,621

27,990

Debtors

23,844

12,323

22,167

37,329

Cash

134,026

169,239

111,407

102,017

Other

0

12,750

12,750

12,750

Current Liabilities

 

 

(34,039)

(30,637)

(30,637)

(30,637)

Creditors

(34,039)

(30,637)

(30,637)

(30,637)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(3,960)

(3,758)

(4,134)

(4,547)

Long term borrowings

0

0

0

0

Other long term liabilities

(3,960)

(3,758)

(4,134)

(4,547)

Net Assets

 

 

210,064

251,943

224,301

234,777

CASH FLOW

Operating Cash Flow

 

 

(21,030)

19,193

(28,707)

(8,575)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(14,930)

(21,715)

(31,614)

(3,405)

Acquisitions/disposals

0

33,213

0

0

Financing

0

0

0

0

Dividends

0

0

0

0

Other

2,326

2,394

2,490

2,589

Net Cash Flow

(33,634)

33,085

(57,832)

(9,390)

Opening net debt/(cash)

 

 

(165,245)

(134,026)

(169,239)

(111,407)

HP finance leases initiated

0

0

0

0

Exchange rate movements

2

0

0

0

Other

2413

2129

0

0

Closing net debt/(cash)

 

 

(134,026)

(169,239)

(111,407)

(102,017)

Source: Photocure reports, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Photocure and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Photocure and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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