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Research: Healthcare
Photocure
Written by
Photocure |
Q3 results |
Earnings update |
Pharma & biotech |
21 November 2016 |
Share price performance
Business description
Next events
Analysts
Photocure is a research client of Edison Investment Research Limited |
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Photocure announced Q3 sales of Hexvix/Cysview of NOK31.6m, which although a 17% increase year-on-year (13% in constant currency) represents a 7% sequential reduction in sales. This is largely attributable to seasonality although unit sales in Nordic countries were 14% lower as a result of salesforce staffing issues. US sales continue to be a growth driver with 10% sequential growth and 46% growth year-on-year.
Year end |
Revenue (NOKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
129.0 |
1.5 |
0.07 |
0.0 |
N/A |
N/A |
12/15 |
134.7 |
(17.4) |
(0.82) |
0.0 |
N/A |
N/A |
12/16e |
134.9 |
(22.0) |
(1.02) |
0.0 |
N/A |
N/A |
12/17e |
150.4 |
(16.1) |
(0.74) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
US sales supported by broader uptake
Photocure announced that the total number of blue cystoscopes in the US increased to 81, two more than last quarter and 16 more for the year. Demand for Hexvix/Cysview remains strong in the region at 8% growth in unit sales quarter-over-quarter, which is the strongest in the year-to-date.
New publications bolster Hexvix/Cysview case
The adoption of the technology has been supported by recent publications detailing the utility of Hexvix/Cysview. A new meta-analysis details the lower risk of progression with patients following blue-light cystoscopy (odds ratio 1.68, p=0.01). A second paper on a German clinical trial (n=403) investigated the increased ability to find lesions using the technology and found a 6.8% increase in cancers and a 25% increase in carcinoma in situ were found (p<0.0001).
Overseas partnerships underway
Photocure has partnered with Juno in Australia and New Zealand, and with BioSyent in Canada for the commercialisation of Hexvix/Cysview. Adoption has been slow in Canada because of the low number of placements of blue-light cystoscopes. However, the product was recently approved in Australia, triggering a NOK2.3m milestone, and sales should be commencing soon.
Valuation: NOK1,490m or NOK69 per share
We have increased our valuation slightly to NOK1,490m or NOK69 per share, from NOK1,455m or NOK68 per share. The reduction in cash to NOK94m was offset by increases in the value of Cevira and Visonac associated with rolling forward our NPVs. We expect to update our valuation following the results from the Hexvix/Cysview Phase III trial and any partnership announcements for Cevira and Visonac.
A slow quarter: Seasonality and salesforce issues
Photocure is a pharmaceutical and diagnostic company that has developed and commercialised the photoactive compound hexaminolevulinate hydrochloride (HAL) for the detection of bladder cancer and currently markets the product in Europe as Hexvix and in North America as Cysview. The product is selectively metabolised in bladder cancer cells forming a fluorescent product that is visible using blue-light cystoscopy, which enables the doctor to more reliably resect the affected tissue. The company has internally commercialised Hexvix/Cysview in its home Nordic territory and in the United States, and it is licensed to partners in Europe, Canada, Australia, and New Zealand.
Photocure is also developing Cevira, a drug/device combination for the treatment of HPV-related dysplasias of the cervix using the same light sensitive molecule as Hexvix/Cysview and an intravaginal light device. The treatment successfully demonstrated efficacy controlling high-grade squamous intraepithelial lesions, and is currently Phase III-ready, pending Photocure finding a development partner. Visonac is a treatment for acne in development at Photocure, which could potentially be used in patients who are refractory to other treatments. It is similarly Phase III-ready pending a partnership.
Q316 results: Positive momentum in the US
Photocure recently reported sales of NOK31.6m for Q316. This marks a year-on-year growth of 17% (13% in constant currency), primarily driven by expansion of the US market, which expanded to NOK7.8m, with 46% growth year-on-year and 10% sequentially. A total of 81 blue-light cystoscopes have been placed in the US, an increase of two from the previous quarter and 16 for the year. Demand remains on an upward trajectory in the US, with unit sales up 37% year-on-year and 8% sequentially. One of the driving factors for increased adoption is the more widespread acceptance of the benefits of blue-light cystoscopy to patients. In May the procedure was added to the guidelines for management of non-muscle invasive bladder cancer by the American Urological Association and the Society of Urologic Oncology. This opinion has been backed up by the recent publication of a meta-analysis supporting the conclusion that the product reduces the rate of cancer progression (odds ratio of 1.64, p=0.01)1 and a recent German clinical trial (n=403) showing that Hexvix/Cysview can increase the number of detected lesions (6.8% for cancer and 25% for carcinoma in situ, p<0.0001).2
Gakis G, Fahmy O (2016) Systematic Review and Meta-Analysis on the Impact of Hexaminolevulinate- Versus White-Light Guided Transurethral Bladder Tumor Resection on Progression in Non-Muscle Invasive Bladder Cancer. Blad. Cancer 2, 293-300.
Back T, et al. (2016) Optimised photodynamic diagnosis for transurethral resection of the bladder (TURB) in German clinical practice: results of the noninterventional study OPTIC III. World J. Urol. ePub.
In Nordic territories, Q3 has historically been a slow quarter (as is Q1) due to seasonality effects. Consistent with this, sales for Q3 were down 18% sequentially, but sales increased 7% year-on-year. However, the growth was primarily driven by favourable exchange rate effects. Unit sales for the region were down 14% year-on-year in all countries, which the company attributes to vacancies in its salesforce.
Exhibit 1: Hexvix/Cysview Q3 sales
Sales (NOKm) |
Y-o-y |
Q-o-q |
Units |
Y-o-y |
Q-o-q |
|
Hexvix sales Nordic |
8,720 |
7% |
-18% |
1,984 |
-14% |
-14% |
Cysview sales US |
7,782 |
46% |
10% |
1,080 |
37% |
8% |
Total own sales |
16,502 |
22% |
-7% |
3,064 |
-1% |
-8% |
Partner sales |
15,138 |
12% |
-8% |
10,274 |
4% |
-11% |
Total Hexvix/Cysview |
31,639 |
17% |
-7% |
13,338 |
3% |
-10% |
Source: Photocure
|
Exhibit 2: Hexvix/Cysview internal sales |
|
|
Source: Photocure |
Partner sales for the quarter were NOK15.1m, which is a 12% increase over 2015, although these sales have a degree of unpredictability based on the partners’ purchasing schedules. End user sales by partners increased 4% over 2015. This is a slowdown from the 7% increase in end user sales in Q216 and 5% for the year to date. The company recently expanded its partners by licensing Hexvix/Cysview to BioSyent in Canada and Juno Pharmaceuticals in Australia and New Zealand. Initial sales in Canada have been hampered by the limited number of blue-light cystoscopes in the country and a slower than anticipated placement of the devices. Marketing authorisation was just recently obtained in Australia in Q3, which triggered a NOK2.3m milestone payment.
Total revenue for the quarter was NOK35.2, with an operating loss of NOK3.2m. Spending was similar to previous quarters at NOK36.3m. We have slightly increased our 2016 predicted revenue to NOK135m from NOK133m to reflect the Juno milestone, and we have slightly reduced COGS to reflect the current run rate (NOK9.1m from NOK9.7m). The company ended Q3 with NOK94m, which should be supplemented by the final €4m payment for Galderma in Q4. We expect this cash to be sufficient for the company to reach profitability in 2018, contingent on the expansion of the Hexvix/Cysview indication to include the surveillance market following the results of the ongoing Phase III clinical trial. The company has guided to lower spending on the trial (€2.5m in 2016 and €7.5m total compared to €3.5m and €8.5m). Enrolment is expected to be complete in Q4 and results are expected in 2017.
Valuation
We have increased our valuation slightly to NOK1,490m or NOK69 per share, from NOK1,455m or NOK68 per share. The reduction in cash was offset by an increase in the value of the Cevira and Visonac assets associated with advancing our NPVs. Our model assumes a partnership agreement will be made for these assets in 2017 with associated milestones of NOK80m each. We expect to update our valuation with any announcement of partnerships and following the results of the Hexvix/Cysview Phase III clinical trial.
Exhibit 3: 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 |
332 |
2019-20 |
Fully owned – US and Nordics, partner with Ipsen in EU (35% royalty) |
553 |
|
Cevira |
HPV-related diseases |
Phase III |
50% |
2020 |
2,399 |
2030 |
17.5% |
395 |
|
Visonac |
Acne |
Phase III |
60% |
2020 |
2,175 |
2028 |
17.5% |
449 |
|
Total |
|
|
|
|
|
|
|
1,396 |
|
Cash and cash equivalents (Q316) |
94 |
||||||||
Total firm value |
1,490 |
||||||||
Total basic shares (m) |
21.5 |
||||||||
Value per basic share (NOK) |
69 |
||||||||
Options (Q316, m) |
0.2 |
||||||||
Total number of shares (m) |
21.7 |
||||||||
Diluted value per share (NOK) |
69 |
||||||||
Source: Edison Investment Research
Exhibit 4: Financial summary
NOK000s |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
128,951 |
134,717 |
134,861 |
150,404 |
Cost of Sales |
(6,996) |
(8,221) |
(9,094) |
(11,662) |
||
Gross Profit |
121,955 |
126,496 |
125,767 |
138,741 |
||
Sales, General and Administrative Expenses |
(93,576) |
(115,025) |
(126,528) |
(132,854) |
||
Research and Development Expense |
(32,540) |
(29,558) |
(15,985) |
(16,785) |
||
EBITDA |
|
|
(4,161) |
(18,087) |
(16,746) |
(10,897) |
Operating Profit (before GW and except.) |
(5,630) |
(21,986) |
(23,160) |
(17,311) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Operating Profit |
(5,630) |
(21,986) |
(23,160) |
(17,311) |
||
Net Interest |
7,157 |
4,553 |
1,187 |
1,234 |
||
Other |
(15,573) |
(9,771) |
224 |
0 |
||
Profit Before Tax (norm) |
|
|
1,527 |
(17,434) |
(21,973) |
(16,077) |
Profit Before Tax (FRS 3) |
|
|
(14,046) |
(27,205) |
(21,748) |
(16,077) |
Tax |
(0) |
0 |
0 |
0 |
||
Deferred tax |
(0) |
(0) |
(0) |
(0) |
||
Profit After Tax (norm) |
1,527 |
(17,434) |
(21,973) |
(16,077) |
||
Profit After Tax (FRS 3) |
(14,046) |
(27,205) |
(21,748) |
(16,077) |
||
Average Number of Shares Outstanding (m) |
21.3 |
21.4 |
21.5 |
21.7 |
||
EPS - normalised fully diluted (øre) |
|
|
7 |
(82) |
(102) |
(74) |
EPS - FRS 3 (øre) |
|
|
(66) |
(127) |
(101) |
(74) |
Dividend per share (NOK) |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
76,512 |
76,394 |
90,878 |
113,619 |
Intangible Assets |
42,393 |
50,615 |
37,017 |
60,025 |
||
Tangible Assets |
3,056 |
2,288 |
1,654 |
1,387 |
||
Other |
31,063 |
23,490 |
52,207 |
52,207 |
||
Current Assets |
|
|
194,067 |
171,670 |
151,499 |
130,103 |
Stocks |
13,237 |
13,800 |
15,353 |
17,363 |
||
Debtors |
15,585 |
23,844 |
20,476 |
23,156 |
||
Cash |
165,245 |
134,026 |
102,710 |
76,623 |
||
Other |
0 |
0 |
12,960 |
12,960 |
||
Current Liabilities |
|
|
(27,466) |
(34,039) |
(30,402) |
(30,402) |
Creditors |
(27,466) |
(34,039) |
(30,402) |
(30,402) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(3,055) |
(3,960) |
(4,356) |
(4,792) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(3,055) |
(3,960) |
(4,356) |
(4,792) |
||
Net Assets |
|
|
240,058 |
210,064 |
207,618 |
208,528 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(6,089) |
(21,030) |
(11,615) |
2,283 |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(748) |
(14,930) |
(23,825) |
(30,888) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
4,138 |
2,326 |
2,421 |
2,518 |
||
Net Cash Flow |
(2,699) |
(33,634) |
(33,019) |
(26,087) |
||
Opening net debt/(cash) |
|
|
(167,258) |
(165,245) |
(134,026) |
(102,710) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
(1) |
2 |
0 |
0 |
||
Other |
687 |
2,413 |
1,703 |
0 |
||
Closing net debt/(cash) |
|
|
(165,245) |
(134,026) |
(101,710) |
(76,623) |
Source: Photocure accounts, Edison Investment Research
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