Even stronger LT growth prospects after Ipsen deal



We reiterate Buy recommendation on Photocure share at a higher TP of NOK 150/sh (130) after the news of taking back Hexvix from Ipsen makes it possible for the company to repeat the ongoing US success story in Europe. We see the company’s case strengthened by the news and visibility is better with clear guidance for 2023.

1Q figures in line with pre-announced ones
PHO released its 1Q report on May 7th. There were no surprises on financials, as the company pre-announced quarterly figures at the time of private placement a week before. Revenues showed a modest YoY growth to NOK 55m and EBITDA came in negative at NOK -7m. Notably, 1Q figures were weaker than our latest estimates in February, partly impacted by the COVID-19 crisis.

Key news – taking back European market from Ipsen
On April 27th, PHO announced an agreement with Ipsen to regain rights for the sales and marketing of Hexvix in Europe from October 1st. The deal includes a fee of EUR 15m (NOK 170m) and royalties of 10-15% of sales in years 1-7 and 7.5% of sales in years 8-10. The step is very positive for Photocure, as Ipsen was not successful with Hexvix sales in Europe and Hexvix is still not available in many large European markets. The move should ensure solid long-term growth for Hexvix beyond just the US.

2023 guidance updated to NOK 1bn @ 40% EBITDA margin
Photocure now aims to reach total global revenues in a range of NOK 1bn by 2023. Earlier guidance was for USD 70m in sales in the US by that year (no comment if that is kept). Growth potential beyond is also significant, in our view. PHO aims at approx. 40% EBITDA margin, which is below our previous estimates. Therefore, our updated 2023 estimates are with much higher sales but not too much change on the EBITDA side. We, however, note that NOK 1bn goal has upside potential, while significant growth beyond that is also expected.

Positive stance is kept, as deal with Ipsen strengthens LT growth prospects
We have revised our model after the deal with Ipsen that presents strong long-term growth prospect beyond the US. Photocure has an opportunity to make Europe another success story, as was done with the US. Therefore, our positive stance towards the stock is kept at a higher TP of NOK 150/sh (NOK 130/sh previously). We are also surprised by the rather subdued market reaction to the news, but expect it to be better appreciated over time.

Notably, Photocure also enjoys strong shareholder support with the 10% placement oversubscribed six times, which also indicates capital is there to support the growth story. Banks seem also open to debt financing, which is another important factor to support the preparations for European endeavor. As for COVID-19, the near-term impact is going to be felt, but TURBTs are only mostly delayed, as the bladder cancer is there and the need for Hexvix/Cysview is unchanged.

Analyst

Tomas Skeivys, CFA
+47 21 95 37 49
tomas.skeivys@norne.no