Photocure ASA (PHO) Earnings Call Transcript

All right. Well, good morning, good afternoon. This is Dan Schneider, CEO and President of Photocure. Welcome to Photocure ASA's Third Quarter 2026 Results. With me today is Priyam Shah, our Vice President of IR; and Dick Peters, our Vice President of Finance and IT. But also joining us today is a new member of our team, our new CFO, Dennis Camporeale. Dennis, maybe you'd like to say a few words. I know you won't be in so much speaking mode today, but at least introduce.

Sure, Dan. Thanks. So as Dan mentioned, I joined the team on Monday after 25 years in the healthcare investment banking and corporate finance world. Most recently, I led the life science tools and diagnostics practice at Canaccord Genuity. I've spent this week learning from Dick and the team, and I look forward to meeting many of you guys over the coming months.

All right. Great. Welcome, day 3. All right. We'll get into the next slide. Disclaimers are in place for today's presentation. Next slide. So Photocure's strategy is built around the 3 priorities, and we continue to strengthen. It's strengthening the core by accelerating Hexvix and Cysview through expanded BLC installations, upgrades, mobile adoption and market penetration. All of these are key accelerators to the current business. We also want to lead the standard, drive broader BLC adoption in non-muscle invasive bladder cancer detection, surveillance and treatment monitoring through next-generation systems, expanded market access and flexible blue light cystoscopy. And the third, expanding on the platform. with a broader uro-oncology and precision diagnostic platform through biomarkers, AI, strategic partnerships and targeted M&A, building on initiatives such as the acquisition of Vesica Health and the AI collaboration with Claritas and Artera. Together, these priorities drive near-term growth, expand our market opportunity and strengthen our long-term value creation. Q3 highlights. Product growth. Overall, we had 7% product revenue growth ex FX. In North America, we delivered 9% product revenue growth ex FX and a 9% unit growth in rigid unit -- where rigid unit growth was 10%. The installed base of Saphira upgraded blue light equipment continued to increase with 9 new tower placements and 4 tower upgrades in the U.S. ForTec, the mobile solution, continues favorable impact on growth with 31 towers, up from 24 now in their national fleet of rentals, underscoring the growing demand for blue light cystoscopy across hospitals without capital budgets. And the number of active accounts increased 20% year-over-year to 454, setting the stage for continued momentum into the future. In Europe, European product revenue was up 6%, units up 8%. We continue to execute in EU with growth across all our key markets, driven by continued execution focus and tower upgrades. The Olympus Visera III BLC equipment upgrades continue to gain momentum with now 87 Visera installs in the field and Stryker blue light-enabled equipment has also commercially launched in EU as of Q2. Upgrades through the world have proven to increase the usage of BLC with Hexvix and Cysview, encouraging accounts to upgrade remains a #1 priority for Photocure. Adjusted EBITDA for the quarter was NOK 14.2 million (sic) [ NOK 18.5 million ], while reported EBITDA was NOK 4 million. The adjusted EBITDA margin in Q3 was 11%, while year-to-date 2026 adjusted EBITDA is 14% and comparable to last year. We continue forecasting improved operating leverage for 2026 while investing in key growth initiatives across the business. We had approximately NOK 9.4 million in business development expenses in Q3 on very strategic initiatives and related expenses that bode well for our future. At the end of Q2, we had NOK 162.4 million in cash and continue to have no interest-bearing debt on the books. Some key highlights from Q3. Dennis introduced himself. We're super excited to have Dennis join the team. He brings over 20 years of investment banking experience in med tech, diagnostics and broader life sciences. He brings a valuable combination of industry insights, particularly in the space we're in, the financial expertise and a strategic perspective to the company, which will be incredibly valuable as we continue to advance our growth strategy and broaden our reach to unlock the full potential of our emerging portfolio. We also had the Vesica Health acquisition. Following the acquisition of Vesica Health in Q2, we continue to integrate AssureMDx into our portfolio as we prepare for commercialization. As a reminder, Vesica's acquisition included a $2.75 million equity milestone for the achievement of the ADLT or advanced diagnostic laboratory test designation by October 1 or the amount rolls into a CMS reimbursement milestone as we are now prioritizing the Novitas LCD, Local Coverage Determination pathway to Medicare coverage for AssureMDx, the ADLT milestone no longer applies. Our focus remains on advancing our coverage and achieving Medicare reimbursement in line with the acquisition agreement. So said another way, that milestone that was tied to ADLT now becomes part of and added to the CMS milestone. FDA reclassification on August 14, the FDA published a proposed order in the Federal Register to initiate the process of reclassifying cystoscopy systems intended as an aid for the detection of bladder cancer from Class III to Class II. The FDA is initiating the proposed reclassification on its own initiatives following the review of available scientific, clinical and post-market evidence. The FDA has stated that there is sufficient information to establish special controls that together with general controls will provide reasonable assurance of safety and effectiveness in these devices. The FDA closed the public comment period last week and will now begin their discernment. Reminder that there is no statutory required time line, but given the level of interest and response, we remain optimistic on timing. The unlock has the potential to have a dramatic impact on the U.S. core business, opening up 65% of the market, which has otherwise been very difficult for us to access due to Karl Storz not having access to those hospitals. In Cevira news, Asieris entered into an exclusive licensing agreement with Theramex for Cevira, subject to certain conditions. Advancing the global development and commercialization of this first-in-class nonsurgical treatment for cervical precancerous lesions in Europe. The agreement is to cover all countries in Europe as well as Australia, New Zealand and Turkey. Photocure's economics continue to remain only based on the milestones and royalties as per the original agreement with Asieris, and we are not impacted by this new multiparty relationship. The first royalty payments were received this quarter related to the sales of Cevira in China and following the start of commercialization in late Q2 2026. In other publications and events, we had real-world economics in advancing the predictive models using blue light cystoscopy. So continuing to build the scientific and economic data around the use of blue light cystoscopy. Moving on to segment trends. There's been strong unit sales in both regions. Both North America and Europe delivered continued growth. In North America, product revenue increased 9% ex FX, with in-market unit sales increasing 9%, rigid growing at 10%. 13 new Saphira towers were installed, 9 new 4 upgrades, adding to the active BLC account growth of roughly 20% year-over-year. The ForTec mobile solution now covers over 200 accounts and 350 different physicians are now trained, demonstrating the growing momentum in demand. They now have 31 towers, up from 24 in their fleet, but also use some of those towers for backup and one-off procedures. In Europe, product revenues increased 6% ex FX and in-market unit sales increased 8%, driven primarily by 11% growth in the DACH countries and 8% growth in the priority growth markets of France, U.K. and Italy. There are now 87 Olympus Visera III installs since launch and 29 upgrades of other equipment since year began. We continue to monitor the situation around the generic Hexvix from third parties as part of our normal competitive surveillance. We are aware of a filing in Europe, but at this stage, there's been no regulatory approval or commercial launch of the generic. And the timing and likelihood of any potential market entry may remain uncertain. We do not have any information to assess the impact on our business at the time, and we will continue to monitor it. Active accounts, particularly in the U.S., 20% growth in active accounts in the U.S., which are accounts that have ordered in the last 12 months. Over the past 8 quarters, we have consistently seen strong year-over-year growth in accounts as ongoing trend fueled by ForTec and increased interest and importance of BLC. The ForTec program continues to exceed our expectations. Reactivated accounts with BLC upgrades along with new accounts remains an important initiative as upgrades provide double-digit uplift in sales. We continue to see momentum in the overall interest and adoption of BLC with Cysview in the U.S. And I'll also comment that the ForTec mobile solution also is a good bellwether to the anticipation of additional OEMs in the U.S. market and the extreme interest in using BLC equipment for blue light cystoscopy using Cysview and Hexvix. Moving on to growth initiatives. You've seen the slide before, but we can put a checkmark on the FDA reclassification and OEM expansion. The U.S. offers a significant growth opportunity with 3 key levers that could materially expand our serviceable market. First, the FDA reclassification and additional OEM participation can unlock more of the rigid VLC market. The FDA has initiated the reclassification process as of August 2026. And as of last week, they have now closed the public comment period and will begin their discernment. Second, flexible BLC reentry into surveillance opens up a much larger reoccurring use opportunity. We expect to have the Richard Wolf global flexible solution to be launch ready by the end of 2027. And third, improved reimbursement can reduce economic barriers and friction and accelerate the adoption, which we continue to work on with CMS. These opportunities build on a substantial underlying market and approximately 85,000 new bladder cancer patients annually in the U.S. with more than 400,000 TURBTs in the OR and over 800,000 surveillance procedures using flexible cystoscopies performed every year in the United States. As these catalysts materialize, we believe Photocure has significant potential to expand its reach and accelerate the U.S. growth. Another opportunity in expanding our presence in precision diagnostics. Historically, Photocure has operated primarily at the confirmed diagnosis and treatment stage, which is the green box on the right of the slide you see. Majority of Hexvix and Cysview today is used with rigid scopes in the OR setting and will be used in the clinical setting for regular bladder cancer surveillance using BLC Flex, which we are now codeveloping with Richard Wolf and expect to be commercially ready by the end of 2027. With AssureMDx, the blue box to the left, which we acquired from Vesica Health in the transaction back in June, we now move upstream into the first point of clinical suspicion when patients present with signs or symptoms, primarily hematuria that require further workup to confirm the diagnosis. Being upstream expands our relevance throughout the patient journey from initial hematuria evaluation all the way through resection, surveillance and treatment with our developmental partnerships with Claritas and Artera for AI enablement and then the surveillance through the Richard Wolf co-developed flexible scope. We believe this creates a more integrated bladder cancer platform and strengthens our long-term competitive positioning in bladder cancer care and precision diagnostics. And updating on AssureMDx, we're in the preparation for commercialization. Up until now, we are primarily focused on explaining the AssureMDx clinical opportunity and the strategic rationale for bringing Vesica and Photocure together. AssureMDx represents an opportunity for Photocure to extend its reach beyond cystoscopy into bladder cancer diagnostics pathway, addressing the need for better risk stratification and more informed clinical decision-making. Since closing the acquisition, our focus has moved very quickly from transaction and integration to now commercialization and execution. We're now focused on the commercial opportunity across the 4 areas. Market access is progressing with the PLA coding effective and the draft Novitas LCD supporting potential CMS coverage by mid-2027, while parallel pricing review is underway. We are also establishing the laboratory infrastructure, preparing our existing commercial team and building the clinical and health economic evidence needed to support adoption. The key is to align reimbursement, operational capacity and readiness and commercial execution so we can scale efficiently as Medicare coverage advances. This creates a pathway to bring AssureMDx to more patients while leveraging Photocure's existing relationships and expertise in bladder cancer. There is a significant breadth of activity underway. While many of our immediate milestones are in the U.S., particularly around Medicare reimbursement, this is very much a global strategy. Our product development work is being designed with potential U.S., European and U.K. regulatory pathways in mind, and our clinical evidence generation already extends across both U.S. and Europe. And looking at one of our ongoing studies, ENAiBLE, the Claritas Photocure co-sponsored AI cystoscopy study called ENAiBLE is an important investment in Photocure's future, building the clinical evidence and imaging data set that can help enable the next generation of AI-assisted blue light cystoscopy. We reached a significant milestone with our 100th patient now enrolled. Site activation is progressing across North America and with 15 of the 16 sites expected to be activated by the end of October, supporting continued enrollment and excitement and momentum. Beyond the enrollment milestone, the strategic value is in the data we are building. By combining BLC imaging and clinical outcomes, ENAiBLE aims to create a foundation for AI-enabled tools that can enhance the utility of blue light cystoscopy, support clinical decision-making and further differentiate Photocure's technology over time. This is about more than completing of study. It's about building an evidence base that can help shape the future of AI-assisted bladder cancer detection and strengthen Photocure's long-term competitive position and continued momentum. And with that, I'd like to turn it over to Dick Peters for the financials.

Hello. Today, I'll walk you through the third quarter 2026 financials. In the third quarter of 2026, we delivered NOK 134.2 million of Hexvix and Cysview product revenue, which is an increase of 7% at constant currency versus the third quarter of 2025. During the quarter, we also -- for the first time, reported royalty income from Asieris for the sales of Cevira in China. This was NOK 4.8 million. Please note that this is related to the sales of Cevira in China for Q2 only. Royalties related to the sales in Q3 will be reported in our Q4 results. Furthermore, we also had NOK 1.9 million of revenue from API sales to Asieris for the production of Cevira. The total other revenues were then NOK 6.7 million. Grand total revenues came in at NOK 140.9 million for the quarter, which compares to the NOK 135 million in Q3 2025. Gross profit ended up at NOK 131 million for the quarter. And the gross profit margin of Hexvix and Cysview only was 93% of sales, which is a small increase versus the 92% last year. Operating expenses were NOK 127 million. That's an increase of 13% versus prior year or 19% at constant currency. But please note that these expenses include business development expenses of about NOK 11 million, and those largely relate to the Vesica Health transaction. There were also other expenses related to the biomarker segment included of NOK 4.8 million. But when we normalize for the items mentioned in the adjusted EBITDA, the increase in expenses was 9% at constant currency. Reported EBITDA was NOK 4 million and adjusted EBITDA, which excludes milestones, also the royalty income now, business development expenses, biomarker expenses and the other ad-hoc and noncash expenses came in at NOK 18.5 million, that's in line with prior year, both in absolute terms and in margin terms. Further down the P&L, we see a net financial loss of NOK 24.8 million, which is really mainly driven by unrealized foreign exchange losses on an intercompany loan and on the deferred Vesica Health transaction contingency and by the Ipsen earn-out payments. So with that tax benefits came in at NOK 2 million and the result of net earnings were minus NOK 26.2 million for the quarter. Next slide, please. When we look at the results per segment, we see that the American market -- in the American market, we grew revenues by 9% at constant currency, but we faced significant headwind from the weakening of the American dollar versus the Norwegian kroner. The revenue growth, including the impact of foreign exchange is therefore 3%. Gross profit was NOK 53.4 million or 95% of revenue, the same as last year. And in North America, direct costs actually decreased by 3% versus prior year and came in at a total of NOK 40.9 million. The decrease is mainly driven partially by an increase in employee-related expenses, but then was more than offset by a tailwind of foreign exchange on the expenses. The resulting contribution margin in North America was NOK 12.6 million versus NOK 9.9 million in prior year. This is now 22% of revenue and last year was 18%. EBITDA came in slightly positive at NOK 0.3 million. In Europe, revenues were NOK 78 million for the quarter. That's a small decrease, including the foreign exchange impacts because also the euro weakened against the Norwegian kroner. But at constant currency, we grew at 6%. The growth was mainly driven by a growth of in-market unit sales in the German, Austria, Switzerland region by 11%, but also by 8% in our high-priority growth markets, France, Italy and the U.K. Direct costs in Europe were also slightly below prior year. Again, an increase in employee-related expenses was more than offset by the impacts of foreign exchange. Contribution margin was NOK 40.8 million or 52% of revenue. And finally, EBITDA in Europe was NOK 26.4 million. That's an increase versus the NOK 19.7 million last year. And then we can go to the next slide, where we look at cash flow and balance sheet. First, the cash flow statement. During Q3, the operational cash flow was NOK 19.4 million. That is driven by EBITDA adjusted for noncash expenses and working capital. The cash flow from investments was minus NOK 6.8 million, and that includes investments in intangible and tangible assets such as the U.S. registry and further investments in production facilities. The cash flow from financing was a negative NOK 12.7 million, and that includes a payment to Ipsen of NOK 10.9 million. With that, the total cash flow was 0, and we ended the cash balance for the quarter at NOK 162.4 million. Then to the balance sheet. We see noncurrent assets of NOK 525 million, and this includes intangibles and goodwill from the Ipsen transaction and from the Vesica Health transaction. We also have inventory and receivables of NOK 191.8 million, and that includes the invoiced but still outstanding $4.4 million in milestones from Asieris. Shareholder equity was NOK 583.5 million or 66% of net assets and long-term liabilities were NOK 194.4 million, and that includes liabilities for future Ipsen earn-outs and for the deferred Vesica Health earnout. Current liabilities were NOK 101.4 million. Then we can continue to the key performance metrics, which is the adjusted EBITDA. Here, we are continuing to see the same upward path. Adjusted EBITDA has increased from a negative both in absolute and margin terms in 2022 to a positive about 13% of margin in 2025. Also in year-to-date, we see a continued increase in adjusted EBITDA, and we landed the quarter at 14%, same as last year Q3. Next slide, please. As usual, we present a breakdown of the adjusted EBITDA reconciliation. And I just want to clarify that going forward, we have also included the royalty income from Asieris as an adjustment item because the purpose of presenting the adjusted EBITDA is to reflect an accurate view on the underlying core performance of the Hexvix/Cysview commercial segment. And with that, we conclude the financial section, and I give it back to Dan.

Great. Thank you, Dick. All right. So just a quick summary on Q3 revenue and EBITDA. Overall, a solid quarter with 7% product revenue growth in Q3. Adjusted EBITDA of NOK 14.2 million (sic) [ NOK 18.5 million ] as we continue to invest in key growth initiatives that we believe will: number one, position us for long-term success; number two, generate future revenue growth; and three, will increase our longer-term operating leverage. North American units decreased by 9%, unit growth by 9% and rigid units growing at 10%. We grew our active accounts by 20% and Karl Storz continues to grow the installed base. We had 9 new installs and 4 upgrades. The ForTec national mobile rollout is going extremely well. And as I said, beyond our expectation, now represents 19% of our business. They upped the size of that fleet from 24 towers to now 31 towers. In Europe, revenue grew 6%, 8% unit growth and double-digit growth in the DACH region. We continue to facilitate quality upgrades, image upgrades, and we believe that the Olympus blue light upgrades will help strengthen this initiative. There are now 87 Visera III installed since early '25, and there's a strong pipeline and aligned interest with Olympus to continue that growth rate. And additionally, 29 upgrade systems from other OEMs are year-to-date and reminding everyone that upgrades produce double-digit growth impacts on the business. So they're extremely important to our success. We have a strong cash balance at NOK 162.4 million. And finally, we continue to advance several business development initiatives in next-generation precision diagnostics, including the integration and commercialization of AssureMDx and the AI, our artificial intelligence partnerships with Claritas and Artera. Near-term milestones and corporate objectives. We raised our guidance to 10% to 12% top line product growth with adjusted EBITDA expansion as we realized further operating leverage on the commercial business. We continue increasing Hexvix and Cysview account utilization through upgrades, installs and the mobile solution. We're going to advance the development of the next-generation state-of-the-art 4K high-def only -- world-only Flex system to access and unlock the large surveillance market, particularly in the U.S. but also on a global stage in Europe as well. Our strategic partnership with ICS Claritas developing BLC AI will also become a game changer in bladder cancer precision diagnostics and the detection and the surveillance of bladder cancer. We will continue the data generation of novel precision pathways and health economics to help position BLC as we go to a precision diagnostic in bladder cancer. We'll increase access to BLC in the U.S. through FDA reclass, but also remind everyone, there are alternative OEM pathways that are currently being pursued that will -- we believe will come to market before the reclass materializes, so in the near future. And that brings additional OEMs into the U.S. to expand our growth and momentum. And then continue to support Asieris across both Hexvix and Cevira. And finally, I'll close in on the business outlook. We are focused on translating Photocure's strong market opportunity into sustained profitable growth. That means continuing to expand the adoption of Hexvix and Cysview broadening our reach across clinical settings and building new growth opportunities through data-driven innovation and strategic partnerships. Vesica or AssureMDx adds another growth platform, with modest operating losses expected in the near-term as we integrate the business before scaling towards EBITDA margins above 30%. Looking forward ahead, we expect the consolidated business to accelerate to more than 25% CAGR in revenue from '26 to '30 and then delivering an adjusted EBITDA margins above 25% by 2030 with further upside potential. Ultimately, our ambition is to combine the growth in our core franchise with a disciplined platform expansion to deliver a larger, more profitable Photocure over time. And with that, I think we can go to Q&A. Thank you.

All right. Well, thank you both Dan and Dick. So I've received quite a few questions in the chat as well as by e-mail. We'll try to get through as many as possible. I think we've left ample time for Q&A. If we do not get to your question, please go ahead and just e-mail me, and we'll try to get your questions answered. I'll try to do this a little bit strategically, maybe by topic. I've gotten quite a few questions around Asieris. So let's start with this first one here. Is the Theramex deal positive for Photocure? What does this imply in terms of Cevira approval in the EU? Dan, any thoughts on this?

I see it as very positive. Look, Asieris is not a global company. They're developing products for global commercialization, and they are commercializing directly themselves in China and Asia. But looking across the globe, Europe and U.S., it's always been their aspiration and intention to find partnerships to commercialize the asset. Why that's important to Photocure? Because our royalty stream depends on a successful commercialization. What I particularly like about Theramex, if you know anything about they're part of the Carlyle Group is they are focused on women's health. They've been there. This is an established sales force throughout Europe, extremely strong with great, great track record. So the fact that they've entered into this agreement to commercialize Cevira bodes well for us because we get at a minimum a 10% royalty stream based on those top line revenues, our net sales. So that's extremely exciting. Does it mean anything in terms of approval? I would say that no company moves this far down the track unless they have some level of confidence. But let's remember that this is regulatorily reviewed by EMA. And there could be contingencies attached to it. There could be delays. But I think the fact that they've gotten this far down the line tells us that they feel at least some level of confidence that they expect an approval next year at some point. So very good news for them and very good news for us.

Great thank you. Second one on Asieris. Does Photocure have any direct economic participation in the upfront milestone or royalty payments that Asieris may receive from Theramex? Can you also confirm milestone payment amounts between 10% to 20% royalty on Cevira sales? Does that remain unchanged by the Theramex sublicense structure?

Yes. So the short answer is our deal with Asieris is 10% of net sales. Their deal with Theramex is between them it has nothing to do with us other than we benefit from the fact that it commercializes and there's top line revenues that will flow through in royalty streams to us. Our royalty agreement with them remains intact, 10% to 20% depending on the -- how high the revenues go. I think best way to model is 10% for the time being, and that's our expectation. And regarding what we've received to date, Dick, do you want to take that one?

Yes, sure. So the royalties we reported of NOK 4.8 million, they reflect 10% of their Q2 sales. So we are aware of their September year-to-date report, which reflects their Cevira sales. So you could expect that the royalties related to Q3 will be reported to us during Q4. So that's how the dynamic works. We report with a 1 quarter delay based on a report, that Asieris sends to us 45 days after quarter close. And that's the cadence we stick with. We can't get in their way. They're a public company. They have -- need to have a chance to publish their results first, and we don't want to speculate on what those numbers may be so.

Great. Maybe let's move on to AssureMDx questions, quite a few of those. We do want to clarify something here. And maybe the best way to ask this question is: has AssureMDx failed to achieve ADLT status and has the regulatory path suffered delays? Can you clarify the difference between ADLT and Novitas LCD?

Okay. So I can kind of start from that. So the ADLT is a regulatory status designation given a specific unique lab test. It's at a national level, and its intention is to get sort of special premium pricing, and it's usually by itself a single laboratory. We looked into ADLT, but what was developing as a spring as we're going through the acquisition is Novitas, one of the local carriers found it -- was extremely interested in what we believe is pursuing a class approval. So ADLT, it gets you the price. It doesn't necessarily get you coverage. And keep that very much in mind. We would have had to still get the CMS coverage, and that was going to be a little bit longer pathway than the one that we had outlined when we made the acquisition. But as the Novitas opportunity evolved itself, we realized we are listed in their sort of their proposed ruling. We're in the AUA guidelines. We have a PLA code. Our data is in there with over 1,000 patients. We start realizing that this could be the quickest, fastest way to commercialize and still have a very good in-market price. And so that's what we have pursued at this point. We've had our meetings with them. We should receive our pricing, our proposed pricing later this year. And we -- as far as the LCD goes from Novitas, they have until May, I believe, 17 or somewhere mid-May, whatever they started the process to make a ruling. It could come sooner. I think there's some optimism around that, and we hope that we're included in it. If in the case, we're not included in it, we know pretty specifically as what we might need to do. And so we're already starting sort of a contingency plan if that were to happen. But we feel pretty good about where we're at, the level of interest they showed us, the exchanges and communication with them. And so this definitely is an opportunity that we did not want to miss out on. So we've taken advantage of the opportunity with Novitas and the LCD.