US growth accelerating

Photocure 16 August 2018 Update
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Photocure

US growth accelerating

Financial update

Pharma & biotech

 

16 August 2018

Price

NOK43.00

Market cap

NOK929m

NOK8.2/US$

Net cash (NOKm) at 30 June 2018

98

Shares in issue

21.6m

Free float

74.4%

Code

PHO

Primary exchange

Oslo

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

39.6

48.3

79.2

Rel (local)

38.2

48.3

50.7

52-week high/low

NOK44.8

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 announced results for Q218 with 16% revenue growth compared to Q217. Revenue growth accelerated in the US, where Hexvix/Cysview sales increased 47% (up 56% on a constant currency basis) over Q217 compared to 27% (up 36% on a constant-currency basis) growth last quarter. This was driven mainly by improved reimbursement and a higher installed base of blue light cystoscopes (BLCs).

Year end

Revenue (NOKm)

PBT* (NOKm)

EPS* (NOK)

DPS (NOK)

P/E (x)

Yield (%)

12/16

143.6

12.8

1.64

0.0

26.2

N/A

12/17

150.9

(41.6)

(1.61)

0.0

N/A

N/A

12/18e

201.5

(14.7)

(0.40)

0.0

N/A

N/A

12/19e

288.8

61.0

2.04

0.0

21.1

N/A

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

US driving growth

Q218 sales in the US increased 47% (up 56% on a constant currency basis) to NOK16.1m, driven mainly by volume growth (which was helped by improved reimbursement) and price increases. Unit sales increased 49% and 17 additional units (15 rigid and two flexible) were installed over the quarter (the largest quarterly increase since the initial launch; the previous record had been nine, which was recorded last quarter), bringing the total installed base to 130, up from 104 at the beginning of 2018.

Mid-May 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 original market of 325,000 TURBT procedures. The commercial launch officially began in mid-May, so the impact should be magnified over the remainder of the year.

Nordic revenue decline due to inventory

Nordic revenue fell 8% to NOK10.8m, although in-market unit sales increased 1%. The decline was due to distributors reducing their inventory following the previously announced inventory increase in Q118.

Valuation: NOK954m or NOK44 per share

We have increased our valuation from NOK880m or NOK41 per basic share to NOK954m or NOK44 per basic share, mainly due to rolling forward our NPV and increasing some of our longer-term Hexvix/Cysview forecasts (although peak sales are the same), which was mitigated by a lower cash balance. We have increased our 2018 revenue estimate slightly and are maintaining our estimates for 2019. We expect to update them as we have more information on the progress of the surveillance market launch. With NOK98m in cash, Photocure should have enough capital to meet its needs, especially after recent cost control measures.

Q218 results

Photocure reported revenue of NOK45.7m for Q218, representing 16% growth over Q217 and 10% growth sequentially. Hexvix/Cysview revenues were up 13%. Sales in the US continued to be strong, up 47% compared to Q217. Although there was a negative currency impact, on a constant currency basis, sales were up 56% compared to last year. Sequentially, sales in the US were up 27% for the quarter and had been up 25% sequentially in the previous quarter. End-user unit sales were also strong, growing 49% for the quarter compared to last year, driven by a record quarterly increase in the number of permanent blue light cystoscopes installed (currently 130, up from 104 at the beginning of the year).

Revenues in the Nordic region decreased 8% to NOK10.8m after increasing 24% in Q118. The decline was due to inventory at distributors being reduced after an inventory increase in the first quarter. End-user unit sales in the region were up 1% compared to Q217. For the first half of the year, Nordic revenues are up 7% compared to H117, although end-user unit sales are down 4% due to large hospital deliveries in Denmark at the end of 2017.

Results in partnered areas increased 4% in the quarter to NOK15.6m and were down 1% on a sequential quarter basis. Reported revenues were negatively affected by a NOK1.2m accounting adjustment related to IFRS 15. End-user unit sales decreased 3% due to weakness in the French and German markets.

SG&A for Q2 was lower sequentially at NOK37.8m (compared to NOK39.8m last quarter and NOK41.4m in Q4), although is still up 3% compared to the same quarter last year. SG&A was affected by Photocure streamlining the organization outside of the commercial franchise. This resulted in a separate restructuring charge of NOK13.1m, NOK7.0m of which is related to the departure of its CEO, who has been replaced on an interim basis by the CFO Erik Dahl. R&D expenses remained under control at NOK2.4m as the regulatory work surrounding FDA approval for the surveillance market has now been completed.

Valuation

We have increased our valuation from NOK880m or NOK41 per basic share to NOK954m or NOK44 per basic share, mainly due to rolling forward our NPV and increasing some of our longer-term Hexvix/Cysview forecasts (although peak sales are the same). This increase was mitigated by 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 and any developments with regard to the strategic alternative reviews for Visonac and Cevira (if there are no developments in the next quarter or two we may lower our probabilities of success for these programmes).

Exhibit 1: 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

344

2019-20

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

615

Cevira

HPV-related diseases

Phase III

20%

2021

2,218

2030

17.5%

129

Visonac

Acne

Phase III

20%

2021

2,091

2028

17.5%

113

Total

 

 

 

 

 

 

 

856

Cash and cash equivalents (Q218)

98

Total firm value

954

Total basic shares (m)

21.6

Value per basic share (NOK)

44

Options (Q218, m)

0.0

Total number of shares (m)

21.6

Diluted value per share (NOK)

44

Source: Edison Investment Research

Financials

We have increased our 2018 revenue estimate slightly as Q2 revenues came in higher than expected, although we are maintaining our estimate for 2019 pending additional updates on the launch. We have lowered our R&D estimates by NOK0.3m for 2018 and 2019 as the company reported slightly lower R&D expenses than expected. Much of the spending in this category appears to be complete following the surveillance market approval. We have also reduced our SG&A estimates for 2018 by NOK7.2m and for 2019 by NOK7.5m due to much lower than expected SG&A expenses following the streamlining of the non-commercial organization. However, we continue to expect SG&A to grow in 2018 due to the company’s increased investment in the US market. The company ended Q218 with NOK98m in cash, and we do not expect it to require further financing as we continue to expect profitability in 2019.

Exhibit 2: Financial summary

NOK'000s

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

 

143,627

150,911

201,459

288,758

Cost of Sales

(9,337)

(12,011)

(16,133)

(20,266)

Gross Profit

134,291

138,900

185,326

268,493

Sales, General and Administrative Expenses

(124,647)

(149,098)

(177,374)

(184,469)

Research and Development Expense

(17,652)

(22,896)

(9,795)

(10,187)

EBITDA

 

 

 

(8,008)

(33,094)

(1,844)

73,836

Operating Profit (before amort. and except.)

 

(15,861)

(45,202)

(14,846)

60,834

Intangible Amortisation

0

0

0

0

Other

0

0

0

0

Exceptionals

0

0

(13,133)

0

Operating Profit

(15,861)

(45,202)

(27,979)

60,834

Net Interest

28,640

3,622

140

145

Other

0

0

0

0

Profit Before Tax (norm)

 

 

 

12,779

(41,580)

(14,707)

60,979

Profit Before Tax (FRS 3)

 

 

 

12,779

(41,580)

(27,840)

60,979

Tax

22,530

6,883

6,011

(16,464)

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

35,309

(34,697)

(8,696)

44,515

Profit After Tax (FRS 3)

35,309

(34,697)

(21,829)

44,515

Average Number of Shares Outstanding (m)

21.5

21.6

21.6

21.8

EPS - normalised (ore)

 

 

 

164

(161)

(40)

204

EPS - FRS 3 (ore)

 

 

 

164

(161)

(101)

204

Dividend per share (ore)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

 

74,070

87,486

83,557

73,113

Intangible Assets

26,390

33,315

21,440

8,004

Tangible Assets

1,660

1,268

3,880

6,873

Other

46,020

52,903

58,236

58,236

Current Assets

 

 

 

212,268

175,613

150,578

206,087

Stocks

17,955

19,552

23,723

33,335

Debtors

12,323

14,573

20,808

28,876

Cash

169,239

129,368

92,268

130,097

Other

12,750

12,119

13,779

13,779

Current Liabilities

 

 

 

(30,637)

(40,267)

(41,330)

(41,330)

Creditors

(30,637)

(40,267)

(41,330)

(41,330)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

 

(3,758)

(4,752)

(4,998)

(5,498)

Long term borrowings

0

0

0

0

Other long term liabilities

(3,758)

(4,752)

(4,998)

(5,498)

Net Assets

 

 

 

251,943

218,079

187,806

232,372

CASH FLOW

Operating Cash Flow

 

 

 

19,193

(23,593)

(34,054)

40,388

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(21,715)

(18,588)

(4,017)

(4,142)

Acquisitions/disposals

33,213

0

0

0

Financing

0

0

0

0

Dividends

0

0

0

0

Other

2,394

2,310

971

1,583

Net Cash Flow

33,085

(39,871)

(37,100)

37,829

Opening net debt/(cash)

 

 

 

(134,026)

(169,239)

(129,368)

(92,268)

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)

(92,268)

(130,097)

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 Pty 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.

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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

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 Pty 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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