Solid growth in the US

Photocure 4 June 2018 Long Update (4+ pages)
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Photocure

Solid growth in the US

Financial update

Pharma & biotech

4 June 2018

Price

NOK27.80

Market cap

NOK600m

NOK8.11/US$

Net cash (NOKm) at 31 March 2018

111

Shares in issue

21.6m

Free float

76.9%

Code

PHO

Primary exchange

Oslo

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.8)

(1.9)

4.1

Rel (local)

(2.4)

(7.7)

(13.7)

52-week high/low

NOK32.1

NOK22.1

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

Update on 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 has announced results for Q118 with 14% revenue growth compared to Q117. Revenue growth was particularly strong in the US market where Hexvix/Cysview sales increased 27% (up 36% on a constant-currency basis). Importantly, the company also announced that it has initiated the commercial launch of Hexvix/Cysview in the surveillance setting, which greatly expands the addressable market. There are an estimated 1.2–1.4m surveillance-related procedures per year, compared to 325,000 transurethral resection of bladder tumour (TURBT) procedures, where the company has historically been focused.

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/16

143.6

12.8

1.64

0.0

17.0

N/A

12/17

150.9

(41.6)

(1.61)

0.0

N/A

N/A

12/18e

200.9

(18.3)

(0.43)

0.0

N/A

N/A

12/19e

288.8

56.0

1.86

0.0

14.9

N/A

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

Hexvix/Cysview launch in the surveillance setting

In mid-February, the FDA approved an expanded indication for Cysview, which includes the surveillance setting. Hexvix/Cysview sales may have significant upside if the product successfully expands into the US bladder cancer surveillance market, which has an estimated 1.2–1.4m procedures per year, compared to its current market of 325,000 TURBT procedures. The commercial launch officially began in mid-May so there should be a small impact on Q2 revenues and a greater impact in the second half of the year.

US continues to be the growth engine

Q118 sales in the US increased 27% (up 36% on a constant-currency basis) to NOK12.7m, driven mainly by volume growth (which was helped by improved reimbursement) and price increases. Unit sales increased 29% and nine additional units were installed over the quarter (largest quarterly increase since the launch), bringing the total installed base to 113.

Partner revenue remains an issue

Partner revenue fell 5% to NOK15.8m and was down 12% on a constant-currency basis. France was a major driver due to a loss of reimbursement in Q217 and was responsible for about half of the decline. Germany also saw slowing sales.

Valuation: NOK880m or NOK41 per share

We have adjusted our valuation to NOK880m or NOK41 per basic share from NOK898m or NOK42 per basic share mainly due to a lower cash balance. We are maintaining our revenue estimates for 2018 and 2019 and expect to update them as we have more information on the progress of the surveillance market launch. With NOK111m in cash, Photocure should have enough capital to meet its needs.

Q118 results

Photocure reported revenue of NOK41.6m for Q118, representing 14% growth over Q117 and 3% growth sequentially. Hexvix/Cysview revenues were up 11%. Sales in the US continued to be strong, up 27% compared to Q117. Although there was a negative currency impact, on a constant-currency basis, sales were up 36% compared to last year. Sequentially, sales in the US were up 25% for the quarter. End-user unit sales were also strong, growing 29% for the quarter compared to last year, driven by a record quarterly increase in the number of permanent blue light cystoscopes installed (currently 113, up from 104 at the beginning of the year).

Revenues in the Nordic region increased 24% to NOK12.1m, although this was driven by increased inventory at distributors, exchange rates and price increases rather than organic growth. On a constant-currency basis, revenue increased 19% in the quarter. Also, on a sequential basis, revenues fell 6%. End-user unit sales in the region were down 10% compared to Q117 mainly due to Denmark and large deliveries to hospitals at the end of 2017. Results in partnered areas decreased 5% in the quarter to NOK15.8m and were down 3% on a sequential-quarter basis. Approximately half of the decline from last year was due to weak sales in France because of a loss of reimbursement in Q217. In addition, growth in the relatively new markets of Australia and Canada was hampered by the delayed placement of scopes and reimbursement issues. It is important to note that Q118 revenue was positively affected by an NOK1.7m accounting adjustment related to IFRS 15 as well as a positive foreign exchange impact (on a constant-currency basis, revenue was down 12% compared to Q117). End-user unit sales decreased 5% for the quarter so despite a lot of moving parts such as foreign exchange and accounting changes, the decline in sales matches the decline in units.

SG&A for Q1 was slightly lower than the last quarter, at NOK39.8m (compared to NOK41.4m in Q4) although is still up 19% compared to the same quarter last year. SG&A will likely increase over FY18 due in large part to an increase in the number of salespeople in the US and the surveillance market launch. R&D expenses were down considerably to NOK2.5m from NOK5.6m in Q417 as the regulatory work surrounding FDA approval for the surveillance market is behind them.

Valuation

We have adjusted our valuation to NOK880m or NOK41 per basic share from NOK898m or NOK42 per basic share mainly due to a lower cash balance. We may update the valuation once the company provides an update on the sales trajectory in the recently launched surveillance setting as well as changes to spending associated with increased marketing.

Exhibit 1: 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)

542

Cevira

HPV-related diseases

Phase III

20%

2021

2,218

2030

17.5%

121

Visonac

Acne

Phase III

20%

2021

2,091

2028

17.5%

106

Total

 

 

 

 

 

 

 

769

Cash and cash equivalents (Q417)

111

Total firm value

880

Total basic shares (m)

21.6

Value per basic share (NOK)

41

Options (Q118, m)

0.0

Total number of shares (m)

21.6

Diluted value per share (NOK)

41

Source: Edison Investment Research

Financials

We have maintained our 2018 revenue estimates although we will update them once we receive additional information on the surveillance market launch. We have lowered our R&D estimates by NOK13.7m for 2018 and NOK14.3m for 2019 as the company reported much lower R&D expenses than expected. Much of the spending in this category appears to be behind it following the surveillance market approval. We have also reduced our SG&A estimates for 2018 by NOK1.8m and for 2019 by NOK1.9m due to slightly lower SG&A expenses in Q118 compared to Q417. We continue to expect SG&A to grow in 2018 due to the company’s increased investment in the US market. The company ended Q118 with NOK111m in cash, and we do not expect it to require further financing as we continue to expect profitability in 2019.

Exhibit 2: Financial summary

NOK000s

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

143,627

150,911

200,873

288,758

Cost of Sales

(9,337)

(12,011)

(14,513)

(20,266)

Gross Profit

134,291

138,900

186,360

268,493

Sales, General and Administrative Expenses

(124,647)

(149,098)

(184,537)

(191,919)

Research and Development Expense

(17,652)

(22,896)

(10,078)

(10,481)

EBITDA

 

 

(8,008)

(33,094)

(8,255)

66,093

Operating profit (before amort. and except)

(15,861)

(45,202)

(18,668)

55,680

Intangible Amortisation

0

0

0

0

Other

0

0

0

0

Exceptionals

0

0

0

0

Operating Profit

(15,861)

(45,202)

(18,668)

55,680

Net Interest

28,640

3,622

328

341

Other

0

0

0

0

Profit Before Tax (norm)

 

 

12,779

(41,580)

(18,340)

56,021

Profit Before Tax (FRS 3)

 

 

12,779

(41,580)

(18,340)

56,021

Tax

22,530

6,883

9,002

(15,126)

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

35,309

(34,697)

(9,338)

40,895

Profit After Tax (FRS 3)

35,309

(34,697)

(9,338)

40,895

Average Number of Shares Outstanding (m)

21.5

21.6

21.8

22.0

EPS - normalised (ore)

 

 

164

(161)

(43)

186

EPS - FRS 3 (ore)

 

 

164

(161)

(43)

186

Dividend per share (ore)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

74,070

87,486

84,393

74,632

Intangible Assets

26,390

33,315

24,062

14,038

Tangible Assets

1,660

1,268

1,476

1,739

Other

46,020

52,903

58,855

58,855

Current Assets

 

 

212,268

175,613

160,548

211,872

Stocks

17,955

19,552

21,229

33,335

Debtors

12,323

14,573

20,527

28,876

Cash

169,239

129,368

105,616

136,485

Other

12,750

12,119

13,176

13,176

Current Liabilities

 

 

(30,637)

(40,267)

(41,407)

(41,407)

Creditors

(30,637)

(40,267)

(41,407)

(41,407)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(3,758)

(4,752)

(4,989)

(5,488)

Long term borrowings

0

0

0

0

Other long term liabilities

(3,758)

(4,752)

(4,989)

(5,488)

Net Assets

 

 

251,943

218,079

198,545

239,609

CASH FLOW

Operating Cash Flow

 

 

19,193

(23,593)

(23,064)

31,521

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(21,715)

(18,588)

(2,028)

(2,046)

Acquisitions/disposals

33,213

0

0

0

Financing

0

0

0

0

Dividends

0

0

0

0

Other

2,394

2,310

1,340

1,394

Net Cash Flow

33,085

(39,871)

(23,752)

30,869

Opening net debt/(cash)

 

 

(134,026)

(169,239)

(129,368)

(105,616)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

2129

0

0

0

Closing net debt/(cash)

 

 

(169,239)

(129,368)

(105,616)

(136,485)

Source: Company accounts, 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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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