US continues to be the driver

Photocure 12 August 2019 Update
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Photocure

US continues to be the driver

Financial update

Pharma & biotech

12 August 2019

Price

NOK57.70

Market cap

NOK1,257m

NOK8.97/US$

Net cash (NOKm) at 30 June 2019

87

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

8.9

28.5

29.2

Rel (local)

15.3

32.5

47.2

52-week high/low

NOK63.50

NOK33.40

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 was licensed to Asieris, with a Phase III expected to be initiated in the coming months.

Next events

Updates on US growth

2019

Receive Asieris licensing payment

Q419

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 results for Q219, with 23% revenue growth for the Hexvix/Cysview franchise (vs Q218) to NOK52.1m. Sequentially, however, Hexvix/Cysview sales only grew 2% due to lower Nordic and partner region revenues, which offset strong US sales. In the US, sales increased 52% over the same quarter in the previous year and 16% sequentially. This was driven mainly by improved reimbursement and a higher installed base of blue light cystoscopes. There are now 188 installed cystoscopes in the US, indicating 10% growth in the installed base over the quarter.

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

260.9

21.8

0.69

0.0

83.6

N/A

12/20e

289.5

49.3

1.63

0.0

35.3

N/A

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

Solid US growth

Q219 sales in the US increased 52% to NOK24.5m. This was helped by volume growth, a strong US dollar and increased prices. In US dollar terms, sales were up 41% compared to last year and unit sales increased 34% during the quarter. The total installed base of blue light cystoscopes (both rigid and flexible) increased to 188, up 20% from the 157 installed at the beginning of 2019.

Improved reimbursement aiding US growth

One of the reasons for the strong US growth has been improved reimbursement, which came in the form of a new reimbursement code from the US Centers for Medicare and Medicaid Services (CMS) 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), they are hence covered by Medicare.

Nordic sales down slightly, partner sales up

Nordic revenues were NOK10.7m, down 1% in Q219 compared to Q218 and down 18% sequentially though year-to-date revenues are still up 4%. Partner revenue increased 8% in the second quarter (down less than 1% sequentially), while in-market unit sales were up 4% due to increases in Germany and France. Year-to-date partner revenue is up 8%.

Valuation: NOK1,506m or NOK69 per share

We have slightly lowered our valuation from NOK1,529m or NOK70 per basic share to NOK1,506m or NOK69 per basic share. The decrease was mainly due to slightly lower revenue estimates and a lower level of cash and was partially offset by rolling forward our NPVs. With NOK87m in cash, Photocure should have enough capital to meet its needs, as we continue to expect profitability in 2019.

Second quarter results

Photocure reported total revenue of NOK53.0m for Q219, representing 16% growth over Q218. Hexvix/Cysview sales were up 23%, growing to NOK52.1m. Sales in the US continued to be strong, up 52% compared to Q218 (up 41% in US dollar terms), and up 16% sequentially. End-user unit sales were also strong, growing 34% for the quarter compared to last year, driven in part by an increase in the number of permanent blue light cystoscopes installed (currently 188, up from 171 at the end of last quarter and 157 at the beginning of the year; see Exhibit 1). This growth in the installed base is a good indicator of growth in upcoming periods. As indicated by Photocure CEO Daniel Schneider in our Edison Talks podcast interview, usually a small group of champions at a practice helps get the cystoscope installed and then the base of users grows in any given centre over time.

Exhibit 1: Permanent blue light cystoscopes installed in the US

Source: Photocure

Revenues in the Nordic region decreased 1% to NOK10.7m and were down 18% sequentially. Year-to-date Nordic sales are still up 4%. Results in partnered areas increased 8% to NOK16.9m in the quarter compared to the same period last year and are up 8% in H119, driven mainly by France and Germany.

SG&A for Q2 was up 32% to NOK49.9m compared with last year, and up 5% 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 700 accounts. R&D expenses remained under control at NOK1.1m, down 58% compared to Q218, as the regulatory work surrounding FDA approval for the surveillance market has now been completed. EBITDA for the company was a loss of NOK2.6m, slightly worse than the positive NOK0.7m seen in Q218.


Valuation

We have slightly lowered our valuation from NOK1,529m or NOK70 per basic share to NOK1,506m or NOK69 per basic share. The decrease was mainly due to slightly lower revenue estimates and a lower level of cash and was partially offset by rolling forward our NPVs.

Exhibit 2: Photocure valuation model

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

376

2024

Fully owned – US and Nordics; partner with Ipsen in EU (35% royalty)

1,138

Cevira

HPV-related diseases

Phase III

40% (China)/
20% (US/EU)

2023 (China)

3,044

2034

10–20% royalty from Asieris

281

Total

 

 

 

 

 

 

 

1,419

Cash and cash equivalents (Q219)

87

Total firm value

1,506

Total basic shares (m)

21.8

Value per basic share (NOK)

69

Options (Q219, m)

0.1

Total number of shares (m)

21.9

Diluted value per share (NOK)

69

Source: Edison Investment Research

Financials

We have decreased our revenue estimate for 2019 to NOK260.9m, from NOK285.0m, and lowered 2020 by NOK5.2m to NOK289.5m. The estimates were lowered in part due to weakness outside the US (especially Nordic areas) and due to factoring in a typically seasonally soft Q3 for the US. Note that our 2019 estimates include NOK43m ($5m) in licensing revenues from Asieris for Cevira and without that, our full year revenue estimates would be NOK218.0m. We have also increased our SG&A estimates by NOK6.8m for 2019 and NOK7.1m for 2020 due to the higher run rate of spending and our expectation that the company will continue to increase its investment in the US market. The company ended Q219 with NOK87m in cash, and we do not expect it to require further financing. We currently forecast profitability in 2019, though that is dependent upon the licensing revenue from Asieris; without that we would expect profitability in 2020.

Exhibit 3: Financial summary

NOK000s

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

150,911

181,510

260,892

289,518

Cost of Sales

(12,011)

(17,147)

(20,129)

(23,348)

Gross Profit

138,900

164,362

240,763

266,169

Sales, General and Administrative Expenses

(149,098)

(165,530)

(198,138)

(206,063)

Research and Development Expense

(22,896)

(9,325)

(4,074)

(4,237)

EBITDA

 

 

(33,094)

(10,492)

38,551

55,869

Operating Profit (before amort. and except.)

(45,202)

(23,703)

21,620

49,097

Intangible Amortisation

0

0

0

0

Other

0

0

0

0

Exceptionals

0

(14,199)

0

0

Operating Profit

(45,202)

(37,902)

21,620

49,097

Net Interest

3,622

1,187

218

226

Other

0

0

0

0

Profit Before Tax (norm)

 

 

(41,580)

(22,516)

21,838

49,323

Profit Before Tax (FRS 3)

 

 

(41,580)

(36,715)

21,838

49,323

Tax

6,883

6

(6,739)

(13,317)

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(34,697)

(22,510)

15,099

36,006

Profit After Tax (FRS 3)

(34,697)

(36,709)

15,099

36,006

Average Number of Shares Outstanding (m)

21.6

21.6

21.8

22.0

EPS - normalised (ore)

 

 

(161)

(104)

69

163

EPS - FRS 3 (ore)

 

 

(161)

(170)

69

163

Dividend per share (ore)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

87,486

77,767

74,938

68,525

Intangible Assets

33,315

22,502

8,593

1,008

Tangible Assets

1,268

2,141

2,512

3,685

Other

52,903

53,124

63,833

63,833

Current Assets

 

 

175,613

153,429

171,220

214,767

Stocks

19,552

18,582

20,209

33,423

Debtors

14,573

20,371

20,107

28,952

Cash

129,368

106,833

119,298

140,787

Other

12,119

7,643

11,606

11,606

Current Liabilities

 

 

(40,267)

(52,453)

(42,954)

(42,954)

Creditors

(40,267)

(52,453)

(42,954)

(42,954)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(4,752)

(2,401)

(11,292)

(12,422)

Long term borrowings

0

0

0

0

Other long term liabilities

(4,752)

(2,401)

(11,292)

(12,422)

Net Assets

 

 

218,079

176,342

191,911

227,917

CASH FLOW

Operating Cash Flow

 

 

(23,593)

(24,124)

13,958

21,849

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(18,588)

(2,188)

(1,258)

(1,308)

Acquisitions/disposals

0

0

0

0

Financing

0

6,339

0

0

Dividends

0

0

0

0

Other

2,310

(2,562)

(234)

948

Net Cash Flow

(39,871)

(22,536)

12,466

21,489

Opening net debt/(cash)

 

 

(169,239)

(129,368)

(106,833)

(119,298)

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)

(119,298)

(140,787)

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 Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

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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 Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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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