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Edited Transcript of PHO.OL earnings conference call or presentation 18-Aug-20 12:00pm GMT

Q2 2020 Photocure ASA Earnings Call

OSLO Aug 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Photocure ASA earnings conference call or presentation Tuesday, August 18, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Schneider

Photocure ASA - President & CEO

* Erik Dahl

Photocure ASA - CFO

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Presentation

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Daniel Schneider, Photocure ASA - President & CEO [1]

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Good afternoon to those of you in Norway and Europe, and good morning to those of us in the U.S. I'm Dan Schneider, President and CEO, broadcasting from my home in Philadelphia, Pennsylvania. With me today is Erik Dahl, CFO for Photocure, and he is presenting from Oslo.

Next slide. Just a reminder, today's disclaimers are in place.

Next slide. So I thought I'd start with a real high overview of why I believe it was a very strong second quarter despite the effects of COVID.

From a financial growth highlight perspective, we had positive revenue growth in Q2 despite the pandemic with a growth of 3%. Q2 revenue declined in the U.S., driven by the COVID-19 pandemic, but year-to-date unit -- year-to-date sales are just 2% below last year. We started the quarter impacted significantly with an excess of 50% decrease in revenues, but came roaring back by June, and we're able to make up all that lost revenue. We've significantly improved our financial position with a cash balance of NOK 499 million. We had 2 private placements, one in April and one in June, raising a net NOK 303 million.

We also were able to attain a grant, a loan by the Norwegian government of NOK 50 million. We are in a very, very strong financial position to realize our ambitions of building out the European operations and accelerating growth across the globe for Blue Light Cystoscopy with Hexvix and Cysview.

From a company highlights perspective, we did ink the final agreement with Ipsen, and we are well on our way in transition process. We have our general manager in place, which was announced earlier this quarter. In addition, all country managers have been placed, and they are meeting with the Ipsen counterparts who are transitioning their business to us here at Photocure. It's gone extremely well. I will compliment Ipsen for its coordination and helpfulness through this process. We're getting a lot of good information. We also have uncovered that we believe this opportunity is even better than we'd first thought, given the amount of effort they have put into the business versus what we believe effort will bring.

So we're well on our way. Supply chains have been built. Operations have been set up. People are in place, and we'll be ready on October 1. Again, reminding everyone that this is expected to be EBITDA accretive from full year 2021 and beyond. We also published our first sustainability report, underscoring our belief that we will do business in the right way and conscious.

From a product highlights perspective, we -- the AUA was canceled this year, at least in-person, but they did hold a virtual conference. We actually had key data published through the virtual abstract process on Blue Light Cystoscopy. In addition, there was a virtual session on surgical tips and tricks in performing TURBTs with Blue Light Cystoscopy. It went very, very well. And we got a lot of positive feedback.

From a partnership highlights, in early June -- July, we announced that Asieris has received its China NMPA, or basically, it's a clinical trial application. They now have the green light to begin Phase III trials. There has been very minimal impact from COVID according to their CEO, and they intend to begin enrollment this second half. So we should see first patient in this -- the second half of the year.

In August, just a few days ago, we announced that we had appointed Genotests as the exclusive distributor for the commercialization of Hexvix in Chile. Chile is the first country in South American continent. This will not be the last, but certainly, it's a foothold to begin the process of rolling out Blue Light Cytoscopy across the globe.

In addition, Genotests has been working with Karl Storz and also the urologists in the country, and has already got a nice momentum being built. So we expect good things from Genotests. That market, by the way, is equivalent to about the size of Norway.

So despite the COVID-19 impact and its impact on Q2, we still are going to reiterate our guidance for 2023 and our long-term outlook and ambitions. The visibility remains somewhat low. We don't -- no one can predict a second wave. I'll talk a little bit about what we believe would happen in the case of a second wave. We do not believe the impacts would be anywhere near what they were at the end of March and April of this year because, I think, institutions are much better prepared as are all awake.

Next slide. So first thing you'll note about this slide is we do have a third pinpoint on the map. That is the European headquarters, which will be based in Germany. That is where our General Manager of Marketing and some other staff will be operating out of.

Reminding everyone, we're a commercial-stage pharmaceutical company created in 1997, focused on photodynamic cancer therapy technology. We have transitioned ourselves to a full-blown commercial entity focused in bladder cancer exclusively at this point. We've had accelerated growth at 23% revenue growth in 2019, and we were rolling into 2020 with that same trajectory. COVID has slowed us down, but I am optimistic we will return to very, very strong growth rates in the second half. We treated well over 0.5 million patients. And in-market sales as of last year were over NOK 330 million. And we regained the rights to Europe, which is fantastic, beginning on October 1, which is EBITDA accretive.

Our market cap is now approximately NOK 2 billion. We have 559% share turnover annualized. And we feel like we're in a very, very good position to carry our mission forward.

Next slide. This is the slide that talks about our strategy as we think about where Photocure is today and where we intend to be in the future. It begins with acceleration, and it's driving the depth and breadth of Hexvix and Cysview usage in key accounts. This is extremely critical through this year. As you can imagine, the placement of scopes will be somewhat impacted, not completely, but there will be some impact as capital budgets have been frozen in many institutions, which further underscores the strategy that we put in place this year, which is driving utilization in the accounts we already have. And that's exactly what we've seen as we've come roaring back in the second half of this quarter and going into Q3.

Step 2 is the expansion, both geographic expansion, which Chile is an example. We're looking at Asia, South America, other European countries that Ipsen had control of that elected not to expand into. And also the -- enhancing the value of Hexvix and Cysview, and this is through things as far as investigating the therapeutic use or enhancing the detection or the usability of the product.

The third stage is acquiring. It's partnering and in-licensing synergistic assets in the bladder cancer space. This is where we move from a single-product company to a multiple-product company, diversifying our risk and expanding and accelerating our growth.

And finally, in Phase IV, it's a transformational phase, where we're going to be building a pipeline, partners and acquisitions and having a broader pipe -- portfolio. It is our mission and our vision to become a true global bladder cancer company.

Next slide. So I'm going to take you through a couple of slides -- many of you have seen them before, but this is just reminders on the disease state, the patient flow and some of the other specifics about bladder cancer.

First, it's the ninth most common cancer, not -- non-muscle-invasive bladder cancer with over 550,000 new cases every year. What's often astounding to most investors and most people in general is that it's actually the most expensive cancer to treat in the world, in U.S. alone with over $5.7 billion in spend. And it's partly because the disease itself is a lifelong disease. Once it's diagnosed, it requires constant and ongoing surveillance and treatments.

The other part is and what's quite disturbing is recurrence and progression rates. Reoccurring at 61% in the first year and 78% within 5 years. We believe Blue Light Cytoscopy can have an impact here. We believe some of this reoccurrence is probably tumor cells that were not found under white light. So we believe we can positively impact that for patients. And the progression rates upwards of 50% from non-muscle-invasive to muscle-invasive, which is where it becomes very serious, and people will potentially have their bladder extracted or have other worse conditions. We believe, again, that progression rate is oftentimes attributed to unfound tumors that white light could not see in the bladder, but we believe blue light can impact.

And finally, debilitating effects of cancer, both a lifelong follow-up and also urinary continence, dysfunction and things of that sort.

Next slide. So this is the typical patient flow. Patient experiences symptoms on the left side of the slide. They will go see their general practitioner, who will then refer them to a urologist. The urologist, well, at that point, scope them in the office. This is done under white light. I often get asked the question, why would they not do it under blue light. It's not that they couldn't do it under blue light, it's just that about 80% of the time, it's not bladder cancer. And so you're putting a lot of additional costs into the health system to look at something when ultimately, you're either going to confirm or not, whether or not there is a potential for a bladder cancer. And if you believe or suspect there is bladder cancer, you're going to schedule them into the OR, which is to the far right, the operating room, where you will perform a transurethral resection of that tumors. That would be done under blue light.

In fact, we position our product as definitely must be used in the first TURBT for 2 reasons. One is complete resections, and second one is proper staging. You'll be able to see all the cancer, properly stage the patient, understanding what their follow-on treatment should be as they're then discharged out. The patient then goes into the outpatient clinic under surveillance cystoscopy. There are over 1.6 million procedures in the U.S. and EU. This also was the area where we recently, 2 years ago, got approval to sell Blue Light Cystoscopy and Cysview/Hexvix. It is in this setting that patients are then monitored. And if they see something suspicious, they will then schedule them back into the OR. That cycle between OR and outpatient continues to the life of the patient.

So again, we believe Hexvix and Cysview should be used for the first TURBT and for all intermediate and high-risk non-muscle-invasive bladder cancer patients. We believe it's imperative to the patient care and provides the patient the best possible treatments.

Next slide. So this is a picture of really what the product and the capital equipment that goes with it is it looks like. I often liken this to the razor-razorblade business model or maybe more contemporary coffee makers with the pods. The coffee maker is to the right, that's the Hexvix -- I mean that's the Karl Storz -- in this case, Karl Storz, but any blue light-enabled cystoscope.

In the U.S., we're only indicated with Karl Storz equipment at this point, working on it. But in the rest of the world, we can be used with Wolf equipment or Olympus equipment. That's the coffee maker to the left is what we sell here at Photocure. It's Hexvix/Cysview, Hexvix in Europe and rest of world, Cysview in the U.S. And it is a colorless solution. When it's diluted, it is selectively taken up by the cancer cells in the bladder, and under blue light, which using with the scope, it lights up bright pink and gives very, very clear margins and visibility to the cancer cells. It is a drug-device combination for better visual contrast between the benign and the malignant cells. So we, here at Photocure, sell the razorblades to the left, all right?

Next slide. And why? And why is this important? I think this is probably one of the best slides that we have. This is -- clearly shows the advantages of using Blue Light Cystoscopy with Hexvix/Cysview. The pictures to the left show what the patient looks like under white light. As you can see, in fact, the top picture, I would guess that no one can see the cancer cells, I certainly can't. But to the right, under Blue Light Cystoscopy with Cysview or Hexvix, they glow bright pink, very clear margins, making it very easy for physicians to treat the patients.

The risks of not using blue light is very, very clear. 20% to 35% of cancer patients will be missed if blue light is not used, meaning that patient will go home believing they might be cancer-free, only to find out that, that cancer has been continuing to grow in their bladder. And at some point in the future, it may have progressed. It may have gotten much worse. And had they used blue light, it may have been seen and resected early on.

The second part, importantly, is they may have the wrong risk classification. If you don't see certain cancers, you may think the patient is low risk when in fact, they're high risk and that surveillance procedure or process is very different. For a low risk, it might be comeback in 12 months, we'll take another look. For a high risk, it might be comeback in 3 months. Because the risk of that cancer growing out of control and metastasizing or getting to muscle-invasive bladder cancer.

And finally, it's the incomplete resection of bladder tumors leading to increased reoccurrence, progression and more advanced disease. And that's just obvious -- the whole name of the game is to keep the patient from moving to muscle-invasive bladder cancer.

Next slide. And this is why it's important to keep them in the non-muscle-invasive bladder cancer space. To the right of this graph is really the -- is the survival rate and the recurrence rate. And you can see they plummet once the patient is in muscle-invasive bladder cancer, the red bars. As long as you can keep them in non-muscle-invasive bladder cancer, you have an opportunity to keep that patient alive and treat them for the course of the rest of their life.

So we believe the first TURP is essential for patient outcomes and for the correct diagnosis and the complete removal of all lesions, and we believe Blue Light Cystoscopy with Cysview and Hexvix plays the important and integral role in that.

The other thing and 2 most important factors for progression to muscle-invasive bladder cancer is the presence of CIS, carcinoma in situ. This is a very flat lesion. It's very difficult to see, but under blue light, it is detectable and can be treated. By not seeing it, as you can see in the bottom right, CIS, or carcinoma in situ, recurrence rates are upwards of 73%, and its progression rate to muscle-invasive bladder cancer, which you do not want is upwards of 50%. So you can see where Blue Light Cytoscopy with Cysview and Hexvix can play a significant role in patients' care and preventing these types of progression and recurrence rates.

Next slide. So we're going to move over to the financials with Erik. He'll take you through the highlights of Q2, and I'll be back in a second. Erik?

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Erik Dahl, Photocure ASA - CFO [2]

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Thank you, Dan. Well, in this part of the presentation, we will go through the financials. We're going to look at segment reporting. We're going to look at the consolidated income statement. We'll look at cash flow, and we'll look at the balance sheet.

But before we get to the detailed financials, a couple of comments on foreign exchange in the quarter and also year-to-date, it's been significant. The FX impact for Q2 was, for revenue, positive with approximately NOK 7 million; however, neutral on an EBITDA level. And if you look at the year-to-date impact on revenue, it was positive NOK 10 million, and it was also neutral on the EBITDA side.

I will discuss the financials and -- well, all the amounts in these presentations are -- in this presentation is in Norwegian kroner, unless I specify otherwise.

Let's again start with the segment reporting, and we'll start with the commercial franchise. And the headlines for the commercial franchise for the second quarter are, first of all, that we -- as we know, the second quarter revenue was impacted by COVID-19; however, we saw a rebound in the last part of the quarter, and in June, we were back on the growth track compared to last year.

In Q2, operating expenses increased approximately 11% in constant currencies, and main drivers are scaling of the group activities within medical, regulatory and marketing, and to a large extent, related to preparations for the inclusion of the European business.

We had, in the quarter, 2 one-off impacts on revenue. We had one for U.S. sales as well as one for partner sales. The impact of these one-offs that relates to previous years and previous years-only, you will find as revenue adjustment on this slide. For U.S., the adjustment relates to a rebate program with Medicaid that we have terminated effective 1st of October. We have so far not paid any rebate under the program, but expect to reach agreements with eligible customers during the third quarter.

In the second quarter accounts, we made a one-off accrual based on a conservative estimate of outstanding rebates, in total, an accrual of NOK 8 million for previous years and NOK 2.7 million relating to current year. In the adjusted income statement for the commercial franchise, the part of the accrual related to previous years is classified as revenue adjustment.

The adjustment for partner sales relates to a true-up of royalty payments from Ipsen. We have received adjustments on royalty payments from Ipsen for fourth quarter 2019 as well as first quarter 2020. In total, that was NOK 13.5 million.

In the adjusted income statement, the part of the adjustment relating to last year is classified as revenue adjustment with a total of NOK 5.6 million.

The numbers, total Hexvix/Cysview revenues in Q2 increased 3% compared to Q2 last year. Year-to-date growth was 4% in constant currency. It's a decline of approximately 6%. In-market unit sales decreased 10% year-to-date.

In U.S., second quarter adjusted revenue decreased 12% to NOK 21.5 million. In-market unit sales decreased 18% in the quarter, driven by COVID-19. Year-to-date adjusted U.S. revenues increased 9% to NOK 49.8 million. In constant currency, the decline in adjusted revenue was approximately 2%. In-market unit sales declined also 2%.

The COVID-19 pandemic had a negative impact on sales from March. In-market unit sales in March were 7% below last year. April in-market unit sales were as low as 51% below last year. In May, the in-market unit sales were back at March level, 7% below last year. While June -- in June, in-market unit sales were 7% above last year.

We are growing the installed base of blue light cystoscopes, although due to the COVID-19 pandemic, not at the same rate as last year. During the first half year, 23 cystoscopes have been installed, driving the total installed base to 246 at the end of the quarter, which is a growth of 31% from the second quarter last year.

Nordic revenues increased 30% to NOK 13.9 million in Q2. The increase was driven by an extraordinary COVID-19-related safety stock ordered by Danish authorities on top of ordinary sales. Nordic revenues increased 10% year-to-date. In constant currencies, the growth was 1% year-to-date, while unit sales were at level with the last year.

Adjusted partner revenue increased 21% to NOK 20.4 million in Q2. The increase was driven by a royalty true-up for the first quarter of NOK 7.9 million. Excluding the true-up, the Q2 partner revenue decreased NOK 4.4 million, obviously reflecting the impact of the COVID-19 pandemic. Year-to-date, adjusted partner revenue increased 1%, currency impact was positive at about 10%.

Now total revenue, including milestones and other sales, increased 1% in Q2 and 3% year-to-date.

Other revenues in 2019 include IFRS 15 adjustments of NOK 1.7 million year-to-date. We have no such adjustment this year, so that explains the deviations from 2019 to '20.

The operating expenses, excluding depreciation and amortization, increased year-over-year, 24% in Q2 and 20% year-to-date. The main contributor to the increase is currency impact of approximately 10%. The remaining is mainly driven by costs related to share-based compensation as well as scaling of the group activities within regulatory and marketing, to a large extent, related to preparations for the inclusion of the European business.

EBITDA for the commercial segment was negative NOK 6.4 million in Q2 and negative NOK 10 million year-to-date. And the EBITDA is obviously negatively impacted by COVID-19.

The financials for our development portfolio has been driven by the license agreement for Cevira with Asieris. Last year, we received $5 million signing fee payment from Asieris. In addition, we accrued revenue of 2 development milestones totaling $3 million, and these are committed and timed. The fees from Asieris are accounted for accounting -- according to IFRS 15, and revenue recognition in 2019 was therefore based on a contract value of $8 million. We received $1.5 million this year in the first quarter, which was part of the accrued milestones. Obviously, this is supposed to be impacting cash flow, but not impacting the revenues for the quarter.

Operating expenses within development portfolio continued to decline. The reduction from last year was year-to-date NOK 3.5 million or 48%. The decline is partly driven by one-off expenses in 2019 related to the signing of the license agreement with Asieris.

Let's look at the consolidated income statement. And let's start with the cost base. Operating cost increased 19% in the second quarter. Year-to-date, the operating cost increased 15%. Again, the main contributor to the year-to-date increase in operating cost was currency impact of approximately 10%. The remaining, a total of approximately NOK 5 million, was mainly driven by costs related to share-based compensation as well as scaling of the group activities within regulatory and marketing, which to a large extent, is related to preparations for the inclusion of the European business.

We see that many companies have reduced number of customer-facing employees due to the COVID-19 pandemic. We have not done that. We have maintained our sales resources and have, as far as possible, maintained customer-related activities during the COVID-19 pandemic. We believe the benefit of being prepared was demonstrated with a rapid sales rebound we had in May and June.

EBITDA was negative NOK 8.9 million in second quarter, and year-to-date, negative NOK 13.7 million, compared to negative NOK 4.1 million last year, year-to-date.

Depreciation and amortization, NOK 7.8 million year-to-date. The main single item within depreciation and amortization is the amortization of the investment for Cysview Phase III program, and this will be fully amortized by the end of 2020.

We had restructuring costs of NOK 3.2 million year-to-date. The restructuring cost relates to work performed in conjunction with the agreement with Ipsen.

Net financial income, NOK 6 million year-to-date, driven by foreign exchange gains.

Tax expenses, year-to-date, NOK 7.8 million. We had significant tax expenses in Q1, which was related to our tax asset and tax loss carryforward in the parent company. In other words, not tax payable. The amount was driven by a significant profit in the parent company, partly driven by currency gains. In Q2, however, we had a tax income of NOK 5.1 million.

After net financial items and tax, we have year-to-date, a net loss of NOK 26.4 million compared to a net loss last year of NOK 10.1 million.

Let's look at the cash flow. Net cash flow from operations, positive NOK 11.4 million in Q2 and positive NOK 14.4 million year-to-date. Year-to-date, the improvement from last year was NOK 34 million, and mainly driven by the milestone payment from Asieris of $1.5 million as well as improved working capital in the second quarter.

The impact from changes into working capital for the second quarter was positive NOK 21 million and driven by accruals by payables and by accounts receivables. Cash flow from financing, year-to-date, positive NOK 359.7 million, driven obviously by private placements and the bank financing. We had 2 private placements on 27th of April and 24th of June, raising a total net of NOK 303 million. The private placements attracted a very strong interest from existing shareholders as well as from high-quality institutional investors and were multiple-time oversubscribed. We have also secured bank financing of NOK 50 million in the quarter.

Net cash flow, Q2, positive NOK 371.9 million, and year-to-date, positive NOK 374.1 million compared to negative NOK 20.2 million year-to-date last year. This gives a cash balance at the end of the second quarter of NOK 499 million.

Some words about the balance sheet. Total assets at the end of the second quarter, NOK 612 million. Noncurrent assets, NOK 55.9 million at the quarter end, which includes a tax asset of NOK 30.6 million and investments in tangible and intangible assets totaling NOK 8.7 million. These investments are mainly related to the Cysview Phase III trial. We also find another line within noncurrent assets totaling NOK 16.6 million. This relates to the remaining $1.5 million receivable at -- with Asieris. In addition, this other line includes the balance sheet impact of adoption of IFRS 16 on lease accounting.

Inventory and receivables, NOK 56.9 million, reduced from year-end, NOK 61.6 million. And for the first time ever, Photocure now has a long-term interest-bearing debt as we secured bank financing of NOK 50 million in the second quarter. The loan is secured under a state guarantee scheme for loans related to COVID-19. The loan carries a floating interest. Effective interest rate at the end of the second quarter was 2.67%. The loan is a 3-year term loan. First year is interest-only. Therefore -- thereafter, quarterly repayments of NOK 6.25 million.

Equity at the end of Q2, NOK 496.9 million or 81% of total assets.

Looking at the balance sheet. There has been a tremendous change in the second quarter, driven by funding and resulting increase in the cash balance. Photocure had 2 private placements in Q2, raising a total net of NOK 303 million. These were triggered by the transfer of the Ipsen business back to us.

We intend to use the net proceeds from the private placements to, first of all, create and scale up a world-class marketing, sales and distribution infrastructure after transfer of the Ipsen business. We intend to finance growth and working capital, including expansion in underserved countries and new geographies currently not served by Photocure or Ipsen. The agreement with Chile is an example of that. And we intend to explore new product opportunities and developments and new geographies for Hexvix/Cysview to expand and secure our market position.

The private placement and bank financing, together with a positive operational cash flow in Q2, has provided us with a strong financial position going forward as we develop the company.

And this concludes my part of the presentation, and Dan will continue and finalize.

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Daniel Schneider, Photocure ASA - President & CEO [3]

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All right. Great. Well, thank you, Erik. Let's go to the next slide after the one that's displaying now. So we're going to talk about the expansion and acquire section of our mission. I think first and foremost, the most important thing on our minds today beyond the rebound from COVID-19 is Europe. Reminding everyone that the strategic opportunity, we think, is quite large. We have a unique ability to apply our own commercial success and strong growth from the Nordics and the U.S. to the European region. We have a deep knowledge about our products, our patients, the providers and also the partners in making this really, really work, which is something that Ipsen was unable to do at the same level that we believe it can be done at. It also gives the opportunity to build a scalable business platform for future acquisitions and growth globally, and we continue to build our creditability in the bladder cancer space.

From a value-creation opportunity standpoint, we believe that annual revenues will grow in the 20% to 30% range in Europe. There are key regions within Europe that there's tremendous opportunity, where there's very little sales or no sales at all, but yet a very good market opportunity. We expect the deal to be EBITDA accretive in the full year of 2021, and we think the EU penetration, which, in general, except for Germany and DACH, is under 5%. We believe there's ability to raise those penetrations near the Nordic rates of 35% and 40% penetration rates. And we intend to invest very smartly in Europe. And not just throwing money around, but actually spending it in ways that have the greatest returns.

Next slide. So as I mentioned, the current penetration rate in all countries, except for DACH, is under 5%. We believe the opportunity to reach 40%. If you look at this map, the countries that are in gold or kind of a pale, these are the countries that were at some point or to some degree focused by Ipsen. Although I would argue that probably outside of DACH, there was really minimal amount of focus. All the countries in gray were completely ignored, and their penetration rates are under 0.

When you look at the European continent in general, it has twice as many cases. However, the number of TURBTs is nearly equivalent to the U.S. Pricing is about half of what the U.S. is. But we believe that there's a tremendous opportunity in major markets like the U.K., Spain, that have not been pursued. And also limited resources and investment was put into Italy and France, which we think we can unlock a lot of potential there as well. So we're very excited about this.

And again, as Erik mentioned, in our cost structure, we have begun the investments, getting the right people in place and beginning the transition process. Beginning on October 1, we are out of the gates running fast.

So next slide. Positioned for growth. So the next 2 slides are going to talk a little bit about where we are more a graphic format. And this is why I'm quite pleased with Q2's overall results in light of the COVID-19 impact. As you can see, this is the first half, our first half of the year that -- where we've actually fallen slightly below the prior half, but it's ever so slight and still outpaced last year's 2019. So we believe this trajectory is going to continue. As Erik mentioned, we went from minus 7% growth in April -- minus 51% growth in April to plus 7% by the time we exited out of June. So we feel like we are in a very good place as we're going through July and into August to regain our growth rates.

Next slide. This slide is the installations that are going to fuel our future growth. I think the thing to really think about is that, on average, we average around 15 installations a quarter. This year, we're averaging around 11. There is going to be a slowdown in this. It's primarily driven from the COVID -- well, it's all driven by the COVID-19 impact. Many of the institutions who were greatly impacted by COVID have had to redirect a lot of their capital budgeting to COVID-related treatments, such as respirators, PPE, things of that sort. So they put temporary moratoriums in many institutions from purchasing the equipment.

But I will say that, that doesn't eliminate the pipeline. When the budgets come back or they get the green lights, those accounts still remain highly interested. We have the sales force, as Erik mentioned, we did not disband our sales force or reduce our efforts in any way. We're ready to capitalize on those and get those installations in very, very quickly. So again, pending a second wave of COVID that would maybe further impact us, we believe, we will rebound in 2021, but still yet this year, still, I think, a very good first half of the year by -- where we're really coming at around 75% or 80% of the typical 15-or-so installations.

We see opportunities in Flex. It's particularly because the -- and I think the COVID-19 pandemic has actually underscored that and highlighted that to institutions to try to keep more of the patients treated in the physician's offices and try to avoid the hospitals where resource constraints are very high. So we believe there'll be an opportunity to drive Flex into the future. And I think COVID-19 provided that platform for discussion.

Okay. Next slide. All the key market enablers are in place. And we've got the right ingredients. We have the right approval for surgical and surveillance.

We're accepted by all the major and local guidelines, AUA, EAU. Just you name them, we're on them all.

Access, we have permanent and favorable reimbursement. We will never stop trying to improve our reimbursement, but it's good today. It's positive economics. So there should be very little reason for that to get in our way.

We have activated awareness. I think beyond what we've talked about in the past, which is U.S. patient advocacy groups, et cetera, that are interested, like Beacon, we see it in Chile. And that's why we did this agreement is that there was a growing interest by urologists in Chile, and Genotests has been the one who's kind of led the way in sort of activating that awareness down there. And so we think that with an approval that he'll get fairly quick traction. And they've already done an evaluation with Karl Storz equipment in a seminar. So there is interest for Blue Light Cystoscopy in Chile. And once you get a foothold in Chile, you can look at other countries like Brazil, Mexico, Argentina, Colombia, depending on what countries provide.

And then finally, accelerate. We've got the funding behind us to do the right things the right way and to accelerate our revenue growth.

Next slide. So expanding the product use. One of the expansions is geographic. The other expansion is just the expansion of using the product and other ways of looking at it. And we've talked about in the past, the potential of Hexvix, both as an enhanced detection and physician experience, perhaps in using artificial intelligence. The other is in a therapeutic effect, and we continue down that pathway of investigating these things. We issued a patent, also Orange Book listed in February and March of this year, for the therapeutic use of the product post-cystectomy.

And in quarter 2, we had 3 really good abstracts at AUA that garnered a lot of attention as well as the AUA virtual education session and the tips and tricks in oncology bladder cancer using Blue Light Cystoscopy. So again, physicians and the scientific community continue to show interest in Hexvix, even after it's been on the market for 10 to 15 years. And I think it's a testament to the hard work that the sales force and the medical teams are doing for us.

All right. We'll go to the next slide. One more slide after that. Next one. Yes. What is it, the maze? Yes, there we go. Perfect. All right. So this slide is, I often get asked the question, "Dan, the IP is -- some of the IP has come off IP in Europe. It's scheduled to come off IP in the U.S. for its main indications." And they ask me, "How do you feel about it?" And I say, "I sleep very, very well." And I sleep very, very well because of these 5 reasons. And this is why I believe that generic manufacturers have no interest nor ability to either develop this product or market it or even understand what it does. And I'll give you the 5 reasons.

The first one is from an IP, intellectual property, standpoint, we have and we will continue to wrap IP around our products. And from a generic manufacturers' standpoint, when they look at a product to genericize, they don't want to see a lot of extra intellectual property around the product. That makes them a little unnerved that they are going to violate some patent and that their efforts would go to waste. That's number one.

Number two, from a desk research and market size perspective, this product can't be found through syndicated databases. In other words, if they look up into just general access to data, Cysview or Hexvix does not show up. It's ATC classification, it's other diagnostics. So it's mixed in a giant basket. So it doesn't stick out as a real opportunity. It's not like a glowing light. It's mixed up. They would have to actually get on our website and really dig into the data to figure out what the product potential might be from a generic standpoint.

Second thing -- or third thing is technical and manufacturing hurdles. We're in the process of finalizing the EU and the U.S. Pharmacopeia monographs specifying very tight specifications around the manufacturing of the product. And this is -- just makes it much harder for generic manufacturers. They do not like to follow very tight recipes, and that's an -- exactly what we intend to do.

The product itself -- generic manufacturer wants something fast and quick and easy, and it's not fast, quick and easy. It's freeze-dried API under aseptic conditions. It's a solvent in a vial or prefilled syringe. It's manual and semi-manual packaging and labeling. It's not press pills and push out the door. This requires effort, and generic manufacturers don't want to put that kind of effort behind the product of this type.

And I think the final thing is we do have the exclusive arrangement with the only commercial medical-grade API supplier in the world. So they would have to actually go out and find a manufacture to supply commercial-grade API.

Fourth, regulatory hurdles. This may be one of the larger ones for them in terms of hurdles. It's the drug-device combination that dissuades generic manufacturers. They don't want to get in the situation where they're having to worry about ANDAs and PMAs and work with multiple FDA offices. In fact, they would have to work with the capital equipment manufacturers themselves, Karl Storz, Wolf and Olympus. I can tell you that they have no interest to work with the generic manufacturers because they see real value in a company like Photocure, who will continually service and support Blue Light Cystoscopy. The generic manufacturers are not going to put a sales force out to sales, service and support. We're a very strong partner with our capital equipment manufacturers, and they wouldn't want to damage that relationship. It would have an effect on the total market.

And then I think the other one is there's just no clear approval standard for bioequivalence. We have even tried to figure out how do you get bioequivalence for a product, the way it's used, instilled into bladder, and still, to this point, no one seems to have that answer. So it'd be a very difficult hurdle for our -- a generic manufacturer.

I think fifth and what we are doing and we've been doing for the last couple of years is building a commercial wall that is so difficult for generic manufacturer to penetrate that they're not going to want to get into this market. It's the active support of the product, it's training the physicians and the nurses and the facilitation of the workflow. If we're not in those institutions supporting our accounts, business goes down. And generic manufacturers want a sustainable business that regardless of sales, service and support, the product will continue to flow through. That is not this type of product. This product while it is a pharmaceutical product, it sells more like a device product, and that requires hands on work constantly.

Move to Slide 27, 28. So on Slide 28, we're talking about the license deal with Asieris. Most of you are pretty familiar with who Asieris is. They have been a fantastic partner. We believe the total deal potential is over USD 250 million. The newest event is what I said earlier today, which was they received their NMPA, and they have approval to start their global Phase III clinical trial. We'll start with a -- primarily Chinese-based trial to get Chinese approval. They will have U.S. and European sites. They believe this first trial will feed into the package that will go in for U.S. and Europe. There'll be a second trial in U.S. and Europe that would then support a European and U.S. approval. But for this first trial, this is Chinese-only for Chinese approval. And it's gone very well. They expect -- are hoping for first patient in the second half of the year.

The first initial indication result, once we get through all the milestones, will trigger about $18 million in total with an estimated launch in 2024 in China. I can tell you they are ahead of schedule already. So we'll see.

And then U.S., expecting upwards of and -- EU, $36 million in milestone payments and estimated launch in and around 2026. So I'm very, very happy with the Asieris. They've done a fantastic job in moving this product very, very quickly. And I will say also, we handed them the product Phase III-ready with a SPA. And for the most part, that was upheld by the authorities, and they've been able to speed the process up. So it's been fantastic. All right.

Next slide. And next slide, Slide 30. So COVID-19, we're -- I remain very optimistic in the impact on H2. We believe that even through all of this, it even further in bold headline says Blue Light Cystoscopy with Hexvix and Cysview can play an integral role in a situation like this where patients have been postponed in their procedures through the COVID-19 pandemic.

And so we are positioning the product as the right cystoscopy to use, the Blue Light Cystoscopy, when you get patients back to the clinics or back to the hospitals. We believe through its better detection in spite of the longer checkup intervals, it will prove to be a better outcome for patients.

We also believe there's an opportunity in the physician's office, which I mentioned. With the hospitals being overloaded on resources, this has highlighted the need to move more and more procedures back to the physician offices. For us, that's Flex. And as everyone knows, the Flex market is about 3x the size of the hospital market. And so we believe that, that provides a real nice opportunity for us as we move in through the second half and into 2021. And overall, just reducing the recurrence and a boarding progression for muscle-invasive cancer staging is extremely important to patient care. So we feel very good about where we're at and where we're heading and the momentum behind it.

So we'll close with the final 2 slides. Year guidance, we believe there'll be a strong back-half Q2 momentum in -- from Q2's momentum into Q3 and Q4. There will be some temporary pressure on -- due to the COVID-19. There are some postponed procedures still. There is restricted access depending on where COVID is in the U.S. It's -- and as many of you probably know, the U.S. has not probably done the best job of managing through this pandemic. So states are opening and closing, going red and green. That does impact sales rep access. However, we do access them digitally in other formats. But still, it's always good to have the sales reps in the OR suites.

It will -- we believe there's an unknown impact on the installed base in the near term. Capital budgets are frozen in many institutions, but not all. We'll continue to do installations. It just may not be at the same rate as last year, which was a fantastic year. But overall, if we're installing 10, 11, 12 a quarter, that's fantastic for us. Most of our focus going into this year was driving utilization with our existing scopes. So that's boded very well for us. It's all that effort went into that. And I think that has a lot to do with why Q2 turned out to be a little bit stronger than it -- than maybe some people had thought it might be. It was because the effort put into the existing base of business.

So we expect to rebound in H2, a steady return expected. I also believe, and we believe, that hospitals are much better prepared in case there's a second pandemic. There's strict procedures for patients entering and exiting hospitals, the elective surgeries. We've learned a very valuable lesson. That's also the profit surgeries. The hospitals can't survive if they postpone those indefinitely. So they're finding new ways to do these types of procedures, although we would be somewhere between elective and necessary.

If you are a low-risk patient, you may be postponed a couple of months; high risk, you might be asked to come into the clinic immediately. We believe that the process is in place for hospitals that they won't have to make those decisions going forward and the patients will be treated.

We maintain our 2023 guidance of NOK 1 billion and EBITDA margins approximating 40%.

And I'll close with the final slide, just reminding everyone that our -- we are intending to create a leading bladder cancer company through our 4 stages of accelerate, expand, acquire and transform.

So with that, I'll go to the last slide for Q&A. Thank you.

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Questions and Answers

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Erik Dahl, Photocure ASA - CFO [1]

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So I'm on. Okay. I'm afraid we don't have too much time for additional questions, maybe 5, 6, 7 minutes. I have one question here. Europe, how's it? Ipsen performed well in 2020. What's our thinking? And could we also outline our geographical priorities for the European Union? And are there major reimbursement issues that we can see?

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Daniel Schneider, Photocure ASA - President & CEO [2]

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Okay. First with Europe and its rebound. Europe actually weathered COVID-19 better than the U.S. Their return has been a little quicker. The German-speaking countries, DACH, are really back to where they were pre-COVID. So they've had a very strong rebound of the COVID, and I think they've managed it much better. The sales reps are getting into the institutions.

In terms of priorities in Europe, the #1 priority is going to be DACH, it's Germany, Austria, Switzerland. That is the 80% of the business there. It is also the most profitable piece of business. So what we focused in on is contacting Ipsen and Ipsen sales forces there. And I am very pleased to tell everyone that their sales reps are extremely interested in coming over and working for us, Photocure, and selling Hexvix into the future. They've -- we've -- I've had video conferences with them, my general managers worked with them. The troop has been sent out. So we believe very strong -- very confident that they'll come over, which is extremely important in a transition of a business like that.

The next 2 focuses will be France and Italy and the U.K. All 3 of those countries have tremendous opportunity. There was not a whole lot of effort put into Italy at all over the last couple of years. So we believe there's opportunity there. We have our country manager in place.

In France, same situation. We've had slight changes in reimbursement, but it has not really overly affected the business, but we believe there's an opportunity to really drive business in France. They had the sales reps. They did have their -- they've had a vacancy, and they have another salesperson that was retiring. So we believe by putting in high-quality reps that we'll be able to get a return there. And of course, the U.K., which they basically had abandoned. Outside of that, the rest of Europe, Spain, Portugal, Baltics, Benelux, et cetera, we'll assess those ongoing, but they all remain with opportunity. And I forgot the third question, Erik.

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Erik Dahl, Photocure ASA - CFO [3]

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Yes, that was a good question.

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Daniel Schneider, Photocure ASA - President & CEO [4]

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Reimbursement.

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Erik Dahl, Photocure ASA - CFO [5]

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Yes. Right.

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Daniel Schneider, Photocure ASA - President & CEO [6]

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Yes. Reimbursement. Yes. So we're still looking into it. We have a Head of Global Reimbursement who works with us right now. She is assessing each country individually. Some countries have fantastic reimbursement scenarios. But in every case, with reimbursement, there's always opportunities to improve. And I think different than the way Ipsen handled it, they just kind of accepted as it went. In our case, it's everything to us. So we will put a lot more pressure and effort into the reimbursement, continue to improve it and improve our opportunities in throughout Europe.

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Erik Dahl, Photocure ASA - CFO [7]

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We have time for one more question. Can you say something about Kaiser?

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Daniel Schneider, Photocure ASA - President & CEO [8]

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Kaiser, the only I'd say about Kaiser is that we have the green light for Kaiser. That process has taken quite some time, but second quarter, we did get the green light, which basically means they're allowing our commercial entity and medical teams into the institutions to begin the sales process on bringing Blue Light Cystoscopy to Kaiser. They've had a very positive evaluations in California, and we expect that over the course of the next 6, 12 months, we'll start seeing installations through Kaiser, which will be fantastic.

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Erik Dahl, Photocure ASA - CFO [9]

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There are more questions, but I'm afraid we need to stop now, Dan.

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Daniel Schneider, Photocure ASA - President & CEO [10]

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Okay. Great. Thank you.