Photocure ASA

Trade Execution

It’s difficult for US investors to access this stock. Here’s a comparison of how different major brokers can access the stock:

  • Interactive Brokers: The stock is listed on OSE but you have to route the trade through OMXNO to place the trade. Commission is about 49NOK.
  • Charles Schwab: You can buy the OTC version, but the commission fee is $50 per trade. Not sure if you can buy the original stock if you have a Global Investing Account with them but if you can, I believe the commission is 160 NOK, or about $20.
  • TD Ameritrade: You can buy the OTC version for $5-7 commission fee per trade. But there’s little liquidity.


Photocure ASA has been quietly taking share in the bladder cancer detection space over the past three years. In its home region, the Nordics, the company’s key product Hexvix/Cysview has penetrated 40% of the market. Hexvix is the name used for non-US territories; and vice versa for Cysview. Hexvix/Cysview is a drug that, after taken by the patient, will mark cancer cells in the bladder and make them glow bright pink/red during cystoscopy with a blue light enabled cystoscope (Blue Light Cystoscopy, BLC™).

Currently, the company directly sells the product to Nordics and the USA regions, and has just regained the EU sales right for Hexvix from Ispen early October.  The company licenses its products to other pharma companies to sell in Canada and Australia.

Photocure also develops Cevira for the treatment of human papilloma virus infection and precancerous lesions of the cervix. The company had entered into a License Agreement providing Asieris Meditech Co., Ltd (Asieris) with a world-wide license to develop and commercialize Cevira. And the company has obtained a patent for Cevira in the EU.

We think the company is trading at a compelling valuation due to its microcap status and its Nordic listing. We believe the company can return 4x on investment in three years.

Thesis I: Hexvix/Cysview will soon to be the standard of the industry

Traditionally, white light cystoscopy involves a cystoscope with a lens and a white light for visualizing suspicious lesions. Once lesions are identified, the urologists can surgically remove cancerous tissues, through a procedure called a transurethral resection of the bladder tumor (TURBT). However, there is a high risk of missing tumors, especially the flat and aggressive carcinoma in situ (CIS) lesions. The BLC technology allows one to easily detect tumors that would otherwise be ignored under the white light cystoscopy. And these overlooked CIS lesions are the culprit for progressing non-muscle invasive bladder cancer (NMIBC) to muscle invasive bladder cancer (MIBC), which is a very dangerous stage where patients might die. Therefore, early identification and prevention are key to avoid this vicious progression.

Nevertheless, having the tumors removed is not the end of the story. The recurrence rate is 61% in 1 year and 78% in 5 years. Therefore, outpatient and clinic surveillance cystoscopy is performed to monitor the bladder. The American Urology Association recommends surveillance every three to six months for the first three years after diagnosis and yearly thereafter. That would increase Cysview’s opportunity in existing patients especially given that in 2019, the FDA approved Cysview’s indication for surveillance with flex BLC devices. This extended indication will also integrate Cysview throughout the patient journey.

Ever since Cysview hit the US market, the perception has been great. This has been reflected in numerous scientific studies, journals, authority recommendations, permanent and favorable reimbursements etc. We think over time, the ease of use and the high efficiency will position Cysview with BLC as the industry standard to replace the prevalent practice of using the white light cystoscopy.

In under three years, the USA has become a significant growth driver and has become almost half of the sales of the company. Management sees the potential in the USA and has guided $70m US sales in 2023 (vs. $11m in 2019). To increase the sales 7x under three years is a very ambitious goal. It requires the company to score a run rate of around 70,000 procedures (unit price is ~$1000 in the USA). However, we think this goal is very attainable given the addressable market of 300,000 TURBT procedures and 1.4m bladder cancer surveillance procedures. So 70k procedures is still only less than 5% total penetration. US sales have been growing at 35% in the past three years, but we expect the growth to accelerate significantly because of much improved reimbursement rates and added codes.

While COVID has had an impact, the company has still managed to grow sales. Many procedures in the US were delayed in Q1 and Q2 because hospitals needed to free up capacities for COVID-related activities. However, these couple months of delay may mean worse cancer progression for patients, thus generating a pent-up demand. YTD sales is only 2% below last year’s level.

It’s worth noting that the company only makes the drug Hexvix/Cysview, it does not manufacture and sell the BLC devices. Instead, the company partners with KARL STORZ, who makes rigid BLC for operating room setting, and flex BLC for office/clinic setting. This arrangement eases the cost burden on Photocure who has a 90%+ gross margin, and free up resources to invest in sales and marketing forces. It is important to monitor the cystoscope installations, though, because you need that device to shed the blue light on marked cancer cells. One cannot go without the other. Installations in Q1 were up 39% YoY, and 31% in Q2, all with coronavirus going on.

Asides from the $70m USA ambition, the management is also targeting NOK 1 billion total sales in 2023 with EBITDA margin of 40%. NOK 1 billion is equivalent to $111m. So, asides from the $70m US sales, the company still need $40m from the rest of the world. We think that level of sales growth is easily achievable. In April 2020, the company secured sales right to the EU ex Nordic region from Ipsen, to whom the company entered into a marketing agreement in 2011. Ever since then, the royalty revenue is classified as Partner Revenue on Photocure’s book. In 2019, partner revenue was NOK 65m, book sales for the partnered regions are expected to triple once it initiates sales this October. So, that’s NOK ~190 million ($21m) based on 2019 partner sales.

Currently the company has under 5% penetration in German speaking countries, DACH, and the management expect these regions to reach the same 40% level seen in Nordics. There’s virtually no penetration in UK, Spain, Italy and other countries. Furthermore, Hexvix is product that sells so well that Ipsen’s “sales reps are extremely interested in coming over and working for Photocure and selling Hexvix into the future”, according to the CEO’s dialogue with them. Given this white space, we believe the total EU sales can easily exceed $40m in 2023.

The company can achieve the NOK 1 billion from Hexvix/Cysview alone. We are not even talking about the Cevira call option here. Asieris is at Phase III in China, so it won’t be long until it starts generating royalty revenues, assuming it gets commercialization approval.

Thesis II: Benign Competitive Environment

While Hexvix/Cysview patents are set to expire, we believe there’s little reason to worry about generic erosions. Photocure continues to wrap additional IPs around the product, this will vastly limit what aspired imitators can do without infringing those IPs, therefore discouraging them from even trying. Second, because under the ATC classification, the product will be shown in the “Other Diagnostics” category, where it’s buried with many other products, therefore avoiding the spotlight.

Generic players like quick and easy stuff, but they are expected to find none on Hexvix/Cysview. The management is finalizing the EU and the U.S. Pharmacopeia monograph specifying very tight specifications around the manufacturing of the product. That would mean generic companies will have to follow a very tight recipes, which is not something they favor. Also, manufacturing the product requires freeze-dried API under aseptic conditions. It’s a solvent in a vial or prefilled syringe that requires manual/semi-manual packaging and labeling. To get the API, one would have to knock on the door of the only one commercial medical-grade API supplier in the world, with whom the company has an exclusive arrangement. In short, the manufacturing hurdle is too high for imitators to even think about.

To top it off, as mentioned earlier, Hexvix/Cysview has to work with BLC devices to be useful. The drug-device combination would require complex regulatory processes where one would have to worry about ANDAs and PMAs, and work with multiple FDA offices. So, even if a generic player manages to get through the regulatory hurdles, they’d still have to work with medical device manufacturers like KARL STORZ, Wolf and Olympus, who do not have any interest to work with the generic manufacturers because their sales depend on Hexvix/Cysview acceptance, which has been great given the permanent and favorable reimbursement policies; and healthcare providers would have no interest to switch to a generic version because their out-of-pocket pay is very low.

The company is essentially facing the largest indirect competition, namely the traditional white light cystoscopes. Photocure has superior efficacy over the traditional method because of the ease to use and the high efficacy. Healthcare providers like the product because they will have better results from patients. Patients are happy for obvious reasons. Payors are happy because less recurrence would ease the cost burden on them. Plus, the permanent and favorable reimbursement terms make the switch a much easy process for healthcare providers. We think white light cystoscopes standard will inevitably become dated and replaced by BLC.

Thesis III: Attractive Valuation

Assuming management’s 2023 ambition is the most optimistic case, a 40% EBITDA margin would mean NOK 400 million. Apply a 20x 3-year average EV/EBITDA for Specialty Pharma companies, we have an EV of NOK 8 billion. The company has a net cash of NOK 450 million, so market cap, call it NOK 7 billion. With 27 million shares out, that implies NOK 313 per share, or more than 3x today’s NOK 98 per share. This assumption excludes Cevira’s value (~$250m in total, estimated by the mgmt.).

More conservatively, we assume the company can only do NOK 700 million by 2023 (which is unlikely given the Ipsen transaction would bring the total sales to more than half of that, just based on 2019 numbers alone) and a subpar 30% EBITDA margin, that would give us NOK 172 per share, or a 76% upside. In the downside case where the company fails to execute the growth strategy, we project a 20% organic revenue growth through 2023, a depressed 20% EBITDA margin, and a low-end EBITDA multiple of 15x that would leave us NOK 81 per share, or a 17% downside.

Right now, the company is not generating positive EBITDA but has been FCF positive. It is trading at 7.5x LTM revenue. We think that’s a cheap valuation due to 1) the COVID impact on sales and 2) a potential 7x sales growth in three years.

We think that being a microcap listed in Norway severely discount the discoverability, therefore the valuation, of the stock. Through conversation with the management, we learned that they don’t have a near plan to uplist in the US. However, we think that as product continues to gain traction in the US, investors will notice the company eventually, and as the management executes, we think the valuation will rerate. More, looking further ahead, we think there’s a possibility for the company to uplist in the US given this will be the company’s major market and that the CEO is US-based, too.

The risk reward on this investment is very attractive with near to mid-term catalysts such as the Ipsen deal in October (already happened successfully), earnings in November (to see how things going with regaining the sales in EU, the US growth, and the sales in Chile—the first South America country the company has set a foot on in August), and Cevira’s Phase III data readout (no definitive timeline).

Lastly, we think by underwriting this investment, we are also getting an M&A put option to protect our downside. Due to the pureplay nature of the firm, a net-cash position, and the small size, the company is prime as an acquisition target to add to some pharma’s portfolio.


  • The OTC version of the stock is not very liquid and common stock listed on the Oslo exchange require brokerage access, which may incur higher fees for commissions and forex exchange.
  • The transition to regain EU sales from Ipsen will impact SG&A and the transition might not be smooth. However, we think the company already has the experience and the infrastructure built up by Ipsen; and the transition to direct sales will also get help from existing Ipsen sales reps who are keen to make commissions off Hexvix.
  • Cevira might fail the Phase III trial, but we view it as an unlikely event as previous data readouts have proven a safe profile and a strong efficacy. More, it’s a call option, if it fails, the fundamental story of the company does not change.
  • Decline in partner sales. Asides from the EU, the company entrusts sales to Juno and BioSyent for Australia/New Zealand and Canada, respectively. Two years ago, these regions experienced delay in scope installations. But we think these are reputable and powerful partners and the delay has been resolved as the reimbursement policy adapted the BLC devices. It’s worth mention that BioSyent has been a 100-bagger and the CEO who led the growth is still with the company. We trust BioSyent’s CEO’s extensive knowledge and network with Canadian sales and distribution channels.
  • Regulatory changes with respect to coding and reimbursement. This was happened in France where Hexvix experienced a loss of reimbursement in 2018, which was perplexing because new French National Guidelines for bladder cancer recommended the use of blue light cystoscopy for the first bladder resection in almost all patients. But we think that as Hexvix/Cysview gets gradually accepted as the industry standard, countries will follow America’s playbook to adopt better reimbursement to the product.


Regains EU sales right from Ipsen in October—already happened

Earnings release in November

Cervira Phase III data readouts in China

New sales/distribution agreements in new territories

This writeup—will increase people’s awareness of the company


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