Photocure ASA

OSE:PHO

All right. Well, good afternoon and good morning. This is Dan Schneider, CEO and President of Photocure. With me today is Erik Dahl, CFO, and welcome to the first quarter 2025 results. Just a reminder, the usual disclaimers are in place for today's presentation.

So let's just first start with our strategic priorities and initiatives to make sure everyone is well grounded. We plan on delivering on our financial guidance for growth and revenue and EBITDA this year and continue generating operating income. We are driving the mobile strategy. We'll get into that today and the success so far and also increasing our penetration in our priority growth markets, and we have some recent developments to talk about there as well and to continue to expand our geographic footprint and leverage our distribution partnerships.

In positioning and access, it's really key here that we don't become the next Kodak film. And by that, I mean we need to remain relevant in the marketplace and strengthen our position as the primary diagnostic for precision diagnostics in bladder cancer care as we see the new emerging non-muscle invasive bladder cancer therapies come to market. In addition, we want to support the continued entrance of high-def blue light machines into the U.S. market and also globally, including Canada and Europe. And we do this through both the pressure we're putting in and on the citizens petition as well as alternative ways.

And thirdly, our partnership with Richard Wolf in, one, the launch of this interim solution for Europe to keep flexible blue light cystoscopy alive as well as collecting data and then also, most importantly, advancing the development of a fully optimized high-def system that we intend to launch in the coming years. And then finally, the acquire and transform block, looking for opportunities in non-muscle invasive bladder cancer and other uro-oncology indications with a focus on rapidly growing interest on precision diagnostic indications, things in biomarker, artificial intelligence and other new technologies. And real-time examples of our work in this area is really the Richard Wolf and the ForTec deals, which continue to strengthen our global commercial footprint.

So let's get into the Q1 highlights. Product growth. Overall, we had a 7% revenue growth. We delivered 11% growth on our European business, which I'm very pleased with, and a 2% product growth on the U.S. We'll get into explaining that later today. We installed the base of Saphira has now added 8 new tower placements and 13 upgrades, bringing a total up to 377 and the number of active accounts increased by 17% year-over-year to 337. We continue to execute on the European side with strong growth from Germany and Austria and also France with a 10% growth in the quarter.

The Nordic region began to show signs of momentum as we expected with the Olympus upgrades and launch of the Visera III systems, and we expect that to continue to play out throughout this year and into the future. We generated positive EBITDA growth, our eighth quarter in a row and continue to build operating leverage and expect to continue to grow operating leverage throughout 2025. We also completed a buyback program of approximately 500,000 shares. We ended 2024 with approximately NOK 260 million in cash and no long-term debt or no term debt.

And also on the important news flow, the Richard Wolf interim solution is intended for Europe and rest of world right now. And our intention here is to optimize the system and to collect data and build interest ahead of our future high-def system that we intend to launch in the coming years. And on the data pubs presentation and abstract side, there were 7 very active quarter this year through AUA and EAU. Clearly, blue light cystoscopy is having a strengthening position as the need for precision diagnostics is becoming greater and greater in the marketplace for non-muscle invasive bladder cancer patients.

Let's get specifically into some of the segments. So when we look at the U.S., we estimate that our unit volume growth from rigid tower continues to grow in line with prior quarters in the mid-teens. This more than offset the ongoing decline of Flex sales, which took a deeper dive in Q1 of minus 71% with 18 accounts remaining using blue light very selectively. Flex roughly is less than 3% of our total market sales in the U.S. We also saw a change in buying patterns from some key accounts which affected -- that were affected by 2024 price increases and changed the buying patterns, but we expect no change on the year -- to the year totals and expectations on the year.

In Europe, we had strong growth this quarter, which came from Germany, Austria and France. We continue to expect to see good growth in Germany and other European territories, given the initiatives with the KOLs, there are some guideline updates, which I'll speak about momentarily, especially in the priority markets and the general market trends. We have undertaken to effectively relaunch blue light onto the continent, and we intend to leverage the recent blue light system upgrades of both Olympus, the Visera III systems with 30 installed to date and a pipeline behind it.

Turning to North America. Sales were heavily impacted by the downturn of Flex of minus 71%. And as I mentioned, Flex is roughly 3% or less of our total sales in the U.S. There's also an impact of the timing of customer purchase reacting to 2024 price increases, and we'll get into more of that detail in a moment. Despite this, we did see an adjusted rigid unit growth in line with prior quarters. 21 new Saphira were installed, 13 upgraded, 8 new, adding to the active blue light account growth of roughly 17%. And this bodes well for future quarters ahead as they act as annuities in building our blue light footprint in North America.

The ForTec mobile solution is well above what we expected. We now have 57 accounts. That's up 13. And there have been over 100 different physicians who have used the system and are getting experience with it. This is a key driver to the U.S. business as it opens up access to otherwise inaccessible patient and hospitals in the U.S. And access to the blue light cystoscopy in the U.S. remains our top priority, and we have ongoing efforts with the FDA on the reclassification efforts and entrance of other manufacturers into the market.

The picture you see on this slide is a picture of the booth at AUA Congress. Karl Storz sponsored 2 TikTok presentations, specifically on blue light, which were heavily attended. We had 3 posters highlighting data from the U.S. registry. And in addition, post AUA, Euro Today had an interview with KOLs, Dishman and [indiscernible] and they concluded, and I quote, "Diagnostic tools like blue light cystoscopy enhance risk stratification and emphasizing a shift towards precision medicine and non-muscle invasive bladder cancer management. It's our growing belief that blue light cystoscopy ability to see more assures physicians the ability to perform a more complete TURBT, which leads to more accurate pathology, staging and risk stratification and ultimately choosing the right precision medicine for that patient."

As I mentioned, there has been significant growth in active accounts. We define active accounts as both reactivations of accounts that may have upgraded and now back on with blue light that maybe prior had not had old systems. In addition, the ForTec mobile accounts. And as I mentioned, we're now at 57 mobile accounts that -- or hospitals that have used the mobile system. That's up 13 from quarter 4, which had 44. And we continue to see momentum with new accounts, which is important to the overall adoption of blue light cystoscopy and Cysview in the U.S.

Turning to Europe. The Q1 marks the highest revenue quarter ever supported by continued solid growth in Germany, Austria and France despite the tough 2024 comparator. If you look back to Q1 2024, that was our largest quarter in 2024. So we're quite pleased with the events that are taking place in Europe. Olympus officially launched and installed 30 Visera III BLC equipment systems across Europe in Q1 and has a healthy pipeline for the rest of the year. Olympus has had significant share in parts of Europe like the Nordics and parts of DACH, and this would help us unlock what has been a difficult past.

A very important barometer of efforts and results, and I think this is a really important point to make. There were 2 guideline updates in priority markets this quarter. First, French. And basically, to summarize, it's used blue light cystoscopy in all first resections. When available, bladder photodynamic diagnosis using hexaminolevulinate is recommended for the first resection as a diagnostic tool for non-muscle invasive bladder cancer and for the detection of carcinoma in situ with Level 1 evidence. And second, in Italy, for the first time, we have a national recommendation on blue light cystoscopy, recommended for the first TURBT, second resection and recurrent non-muscle invasive bladder cancer in high-risk populations. And I think that's a testament to the hard work the medical team has put in to the European guideline authorities. So we expect these to pay out over time.

In addition, the EAU Congress had over 11,000 attendees. It was the largest in recent years, and bladder cancer was a primary interest, it was very well attended. We had 2 posters, 2 joint events with industry partners, [indiscernible] and Olympus. We had KOL interviews at our Photocure booth, all summarized with 155 direct physician engagements for Photocure with sponsored initiatives. And again, the sort of the general theme throughout EAU, which was very similar to AUA is BLC is cited for its ability to assure a more complete TRBT, which leads to more accurate pathology, staging and risk stratification. And it keeps coming back as this fast-moving, fast-evolving market around non-muscle invasive bladder cancer continues to evolve. Blue light cystoscopy has taken center stage.

So let's get into some growth initiatives. Two key updates for this. As I mentioned, there are 57 ForTec accounts. It's up from there. Obviously, we're halfway through May. There are over 100 different physicians who gained experience and whose patients otherwise would not have had access to blue light cystoscopy. The Richard Wolf interim solution for Flex efforts have been initiated. Reminding you, this is a $1.3 billion [indiscernible]

U.S. numbers, total addressable market in the U.S. and the EU5. Our intent here with the interim solution is to build and continue to build experience, keep it relevant in the market and get the data in anticipation of our launch of the high-def system that we are co-developing with Richard Wolf.

And final comment in the third box. As mentioned earlier, AUA and EAU, the trends are clearly blowing in favor of blue light cystoscopy. The momentum and pressure continues to build behind the notion of accurate diagnosis in line with the precision pathway for bladder cancer patient care. We believe blue light cystoscopy can play a central part in determining that precision medicine to be used in that pathway. It all starts with -- a precision pathway begins with a precision diagnostic like blue light cystoscopy.

Going to some of our value-generating Asieris programs. I think most recently, I'll go to Cevira first, 2 -- 3 news updates here. We had mentioned that they intended to meet with the European authorities and the FDA. They did both of those in the fourth quarter of last year. They now have clear pathways as what it will take to get approvals in those regions. In addition, they also express interest in pursuing a secondary indication. If they pursue this secondary indication, that will bring additional milestones upon approval for Photocure. So this -- we watch actively.

And I think the other point to make about Cevira, as we've kind of realized is that Cevira may be one of the first, if not the first, Chinese approved product before rest of world. In other words, most products are approved somewhere else in the world, and then they come to China. This may be the first time or one of the first times a drug device has been approved in China first before going to the rest of the world. So Asieris is very, very proud of this. Again, they're a public company. We get our information the same way everyone else does. It's on the public wires after it's been made public by them and their management teams.

On the Hexvix side, we still await the approval of a Richard Wolf Blue Light system, which is expected in the second half of this year, and they'll launch Hexvix in China upon approval.

And I'll hand it over to Erik for the financials. Erik?

Thank you. Thanks, Dan. And well, within the financials, we will review the consolidated income statement. We'll look at the segment report for our 2 main segments and finally, headlines from the cash flow and balance sheet. But first, a few words about foreign exchange. Norwegian kroner weakened in the first quarter year-over-year and measured by unweighted quarterly average, the U.S. dollar increased 5.3% and euro increased 2.1%. Measured in Norwegian kroner, the year-over-year foreign exchange impact for Q1 was for revenue positive approximately NOK 4.4 million and for operating expenses, negative approximately NOK 3.9 million. And then EBITDA is practically 0 impact.

One final comment before we look at the numbers. Please keep in mind that unless other currency is specified, all amounts that I mentioned in this presentation are in Norwegian kroner.

Next slide, please. So now we're looking at the consolidated income statement. And total Hexvix/Cysview revenue was NOK 125 million in Q1, which is an increase of NOK 8.5 million or 7% from Q1 last year. The revenue growth was negatively impacted by an expected decline in kits used for flexible cystoscopy in U.S. as well as a negative impact of timing of sales of rigid kit orders of major accounts in U.S. Excluding flexible and adjusted for fluctuations in ordering, Q1 rigid sales in U.S. increased 13% year-over-year. We will talk more about this in the segment section of the presentation.

Total operating expenses, including business development expenses was NOK 114 million compared to NOK 102 million in Q1 last year. The increase is mainly within sales and marketing, reflecting timing of expenses related to congresses and business meetings and expenses related to FTE adjustments. Furthermore, total expenses were driven by merit and inflation as well as NOK 3.9 million impact of FX, foreign exchange. The main drivers to the cost increase in addition to FX are the timing impact of NOK 2.6 million as EAU was moved from Q2 last year to Q1 this year as well as increased personnel spending of about NOK 1.4 million, which is a mere 3% increase.

Sequentially, however, compared to Q4 last year of NOK 125.7 million, we had an OpEx reduction of NOK 11 million or 9%. I think as a reflection, we have many times said that our operating expenses, excluding business development, foreign exchange and inflation have been stable since we acquired the European business in 2020, and it still is. It still is relatively stable.

Looking at EBITDA after business development expenses, it was NOK 1.8 million compared to NOK 7.9 million last year. The decline is driven mainly by the expected decline in kits used for flexible cystoscopy in the U.S. as well as a negative impact from -- of timing of sales of rigid kit orders to major accounts in the U.S. Depreciation and amortization, NOK 7.4 million in Q1. Main cost item is the amortization of the intangible asset related to the return of the European business from Ipsen. Net financial items in Q1 were a net cost of NOK 3.8 million compared to a net cost of NOK 4.8 million in Q1 last year. After net financial items and tax, we have for Q1, a net loss of NOK 2.4 million compared to a net loss of NOK 7.9 million same period last year.

And now to the segment performance. Next slide, please. Thank you. In the segment reporting, we will focus on the 2 main segments, namely North America and Europe, starting with North America, and revenue for North America increased 2% in Q1. The revenue growth was negatively impacted by an expected decline in kits used for flexible cystoscopy in the U.S. as well as the negative impact of timing of sales of rigid kit orders of major accounts in U.S., as we already have mentioned. We estimate that flexible BLC unit sales in U.S. declined year-over-year by 71%. However, the negative impact from flex will reduce the next quarters as we estimate that we had in Q1 had a total flex volume of only 120 to 110 to 120 kits.

Timing of sales of rigid kits was driven by 2 price increases last year, the first one in March 2024 and the second in December 2024. And several customers moved their ordering due to this. And one of these customers moved deliveries to Q1 last year as high as 7.6% of total U.S. sales in the quarter. So one customer can move a big portion of the total. Excluding flexible and adjusted fluctuations in ordering, Q1 rigid kit sales in U.S. increased an estimated 13% year-over-year. Revenue for North America increased 2% in Q1, negatively impacted by flex and timing of orders and positively impacted by a 4% increase of average sales price.

In general, we have a positive development within the region market with growth in number of accounts as well as installed base of towers. Q1 direct cost increased 6% year-over-year. However, foreign exchange alone was 5% out of the 6%. The contribution was NOK 2 million in Q1, down from last year, NOK 4.3 million, and EBITDA was negative NOK 10.6 million in the quarter. European region had year-over-year revenue increase of 11%. The increase was driven by in-market unit sales growth of 1% year-over-year as well as by rebalancing of inventory levels at wholesalers.

Revenues were also impacted by a NOK 1.8 million benefit from foreign exchange. Direct costs increased year-over-year with NOK 4.3 million or 16% in Q1, driven by timing of expenses related to EAU by merit inflation and also foreign exchange. We ended Q1 with a contribution of NOK 38.2 million compared to NOK 36.1 million Q1 last year. The improvement is revenue driven. EBITDA for Q1 was NOK 19 million, reflecting an EBITDA margin of 25%.

Now let's look at the cash flow and balance sheet. Next slide, please. Net cash flow from operations was NOK 4.1 million in Q1 compared to NOK 8.4 million last year. The reduction was mainly driven by lower EBITDA. Cash flow from investments was in Q1 positive NOK 0.7 million, and cash flow from financing in Q1 was negative NOK 39 million, driven by share buyback programs and the Ipsen earn-out payment. This gives us a net cash flow in Q1, negative NOK 34.3 million compared to negative NOK 2 million Q1 last year. The significant change is driven by the share buyback programs. In total, we paid NOK 29.6 million for the 500,000 shares we acquired.

With this net cash flow, we end Q1 2025 with a cash balance of NOK 259.5 million. The balance sheet at the end of the quarter, we had total assets of NOK 708 million. Noncurrent assets was NOK 316 million at the end of Q1, and this included customer relationship with NOK 91.7 million. Customer relationship is the tangible assets identified in the purchase price allocation for the Ipsen transaction. Noncurrent assets also include goodwill from the Ipsen transaction of NOK 144 million and a tax asset of NOK 47 million.

Inventory and receivables were NOK 132 million at the end of Q1. The increase from last year is mainly driven by increased inventory. Long-term liabilities of NOK 133.8 million include the earn-out liability related to the Ipsen transaction of NOK 113 million. And finally, equity at the end of the quarter, NOK 471 million or 67% of total assets.

And this concludes the financial section. Thank you. Back to you, Dan.

All right. Thank you, Erik. All right. Let's go to the summary of Q1 2025 results. So overall, we believe a solid quarter given the puts and takes, a 7% top line growth despite some timing challenges and flex rapid decline. We had positive EBITDA again, eighth quarter in a row. In addition to the positive EBITDA, we continue to invest in growth initiatives that we believe will generate future revenue growth and increase our operating leverage. We grew rigid tower growth an estimated 13% in Q1 as we continue to outperform the phase down of Cysview usage in the flexible blue light cystoscopy setting.

ForTec is building momentum. It's outpacing our expectations currently, and it's helping support the increasing demand and adoption of blue light cystoscopy in the U.S. Richard Wolf and Photocure's joint development program is on track to bring Flex back to the surveillance market, both in Europe and also the U.S. And in the near-term, the great news is of the interim solution, which is now available in Europe and rest of world, and we'll look for opportunities to roll that out where the systems are available, System blue.

We grew our active accounts, both new and reactivated by upgrades, for example, by 17% over the last year, and we believe this is a great indicator of our performance. This is up from 11% growth in Q4 2024. We continue to work with Karl Storz to grow the installed base of blue light cystoscopy equipment in the U.S. We now have over 50% of the accounts that are Saphira upgraded and is a key priority for Karl Storz in 2025, and we expect this continued upgrade expansion.

The ForTec national rollout, as I mentioned, continues to grow traction and contribute to our growth, creating new business by expanding access to otherwise inaccessible accounts with a novel mobile business model. There are 57 accounts and over 100 users currently enjoying the use of blue light cystoscopy for their patients, and we expect that to continue to gain momentum. In Europe, we continue to facilitate image quality upgrades in nearly -- in our nearly 600 target accounts, and we believe that the Olympus blue light upgrade will help us strengthen this initiative, particularly in the Nordics.

Germany had a continued solid growth of roughly 5%. And we felt the growth in Germany, Austria and France was the key drivers for this quarter, but some of it's timing with some of the other markets in terms of how this rolls out through the rest of the year. And we've also begun reintroducing the Interim Flex of Richard Wolf into the European market. We had a strong presence at AUA and EAU and the topic of conversation and still is post these congresses is blue light cystoscopy as the cornerstone of precision diagnostics in non-muscle invasive bladder cancer for more accurate staging and decision-making.

And again, we ended the cash balance with a very strong balance of NOK 294 million, up from NOK 260 million at the year-end -- I'm sorry, not up from NOK 260 million at year-end '23, misspoke there. All right. And finally, anticipated milestones and corporate objectives. Financial guidance, we're going to maintain [indiscernible] 11% product revenue growth year-over-year. We believe while the year might have started off a little bit soft, we know what's -- how things are going to develop for the year. So we feel very good about this. Year-over-year EBITDA improvement in 2025, we also expect continued operating leverage in the commercial business while we invest in the business.

We expect increasing Hexvix and Cysview throughput through tower upgrades and installations in addition to the ForTec mobile tower rollout as well as the launch of the Olympus Visera III systems throughout Europe. We continue to advance our partnership with Richard Wolf, not only with the interim solution, but also the development and commercialization of the next-generation high-def flexible blue light system for the global market. We present and we continue to present and publish additional data, a tremendous amount of data went out this quarter, more coming that support the use of BLC, particularly as demand for precision diagnostic continues to increase.

We'll continue to support the systems petition and any other pathways to get additional equipment manufacturers into the U.S. market. And we continue to monitor the Asieris progress, particularly for Cevira as it progresses through the Chinese authorities and MPA. So I feel very good about the quarter. I feel even better about how the year is going to transpire. And I think at that, we can go to Q&A.

We have a number of questions here, and we can start with a question to Dan. Can you give an update on when you expect reclassification to happen? Does the cuts in the U.S. government affect the time frame?

It's a good question. First of all, we got to remember, it's no statutory requirement for the FDA to act upon this reclassification request from Karl Storz. However, having said that, we have put tremendous effort and pressure. The FDA is fully aware. This isn't like a one-off request for a reclassification, and it just sort of sits in a public comment box on their website. In fact, there's been tremendous groundswell from manufacturers of the equipment, patients, key opinion leaders, et cetera, supporting this and underscoring the need for access to blue light cystoscopy.

As you think about the trends in the bladder cancer market, this need for more of a precision diagnostic with blue light cystoscopy being that cornerstone in the diagnosis staging and ultimately treatment decision pathway, we feel like we're in a good position. We put congressional support behind this. CMS -- I mean CMS FDA pressure. There's no telling, but I do feel like we have done and we'll continue to do everything we can to push forward on this. In addition, we look for alternative ways to bring additional manufacturers or help additional manufacturers into the marketplace. So more to come. I think this year, there'll be more news in this front.

Given that the U.S. will implement high tariff on pharmaceuticals and that production is in Europe, how does that impact Photocure and what will be the feasibility of producing in the U.S.?

A good question. I actually think about this every day waiting for a final decision from U.S. However, I'm not particularly worried about this. And the reason is that the transfer price and the cost of goods sold that we have for our products for U.S. is less than 5%. So even if a tariff of, let's say, 25% was implemented, it would only be, let's say, 1.25% of revenue. That's an impact, but it's kind of -- it's not enormous. It's nothing that we kind of need to change our business for and probably also don't need to move our production to U.S. soil.

Moving production is a time-consuming thing to do, and it's a very expensive thing to do. So it really has to be a significant tariff hike for us to move production out of Europe. But I think about this every day. I still sleep well, but it's in my thoughts. Thank you.

I might also add, in anticipation of these tariffs, I have to give credit to my manufacturing supply organization who worked very, very hard to make sure we had inventory in the U.S. landed and through customs and ready for sale carry us through this year. So I think we're in a great position. Even so, as Erik said, an impact on a tariff on a low cost of goods sold is de minimis from our point of view.

Weaker volume development in the U.S. How have the growth developed into Q2?

Erik, do you want to add in?

Yes, I can -- I don't want to give you any details about the Q2 development, but it's okay. It meets our expectations.

I think the fact that we're holding firm on our guidance is probably a clue to how Q2s kicked out.

Do you have any indicative time lines of when 1 or 2 additional scope manufacturers could reach the market in the U.S.?

I'm hopeful perhaps could be by the end of this year, could be into early next year. Again, there could be an approval, but that doesn't mean the scopes are going to be in an account the very next day. There's a process that goes with it in launching these. But I feel like that's a potential for this year, certainly as we look into 2026. And I just thought about something on the prior questions on the geopolitical impacts on the FDA, et cetera. We don't really know. It could go both ways. It could be the anti-bureaucracy and the demands for streamlining might speed the FDA up. On the other hand, the fear of losing your job could slow the FDA up. So we don't know the full impact of that. You could argue both sides of that one. That's why we stand with sort of a neutral view on it at this point.

And a question to Erik. Will you do more buybacks given the low share price?

I can blame the compliance and say I cannot comment on that. But obviously, I mean, buyback is a good thing to do and the right thing to do, but it has to be kind of discussed internally and it has to be approved by the Board. So I can't tell you if, yes or no, but I can tell you that we do think buybacks are -- it's a good thing to do.

Are you able to provide a rough estimate on the percentage contribution of mobile BLC by ForTec?

I think it's approaching roughly 10% in the U.S. units and growing.

Also, is there any update you can share on the progress of the BLC reclassification in the U.S.?

I think that question might have come after we've already kind of talked about it. There's -- we're kind of -- that goes back to the first question I even mentioned in the presentation. We continue to put pressure. We have bipartisan support from Congress in this issue as well. We have had interactions with the FDA. They're well aware of this. They're well aware of the importance of it and what it means to patients and bladder cancer patients throughout the U.S. So we remain hopeful. We remain confident, and we remain focused on making this happen, if you can.

That concludes the questions we have received. And Dan, up to you to wrap it up.

All right. Great. Well, thank you. Thank you, everyone, for joining us. Looking forward to Q2, I believe it's towards the end of July. And yes, I think the market is in a really interesting place. And like I said, if you attend AUA, EAU or any our ASCO-GU, there was a lot of emphasis on precision diagnostics, and it seems to keep going back to a cornerstone diagnostic [indiscernible].

So we feel like the winds, the trend winds are in our favor and the -- we got a lot of good things going on, lot of inflection points we're waiting on this year.s