Photocure ASA

OSE:PHO

Earnings Call Transcript 2023-Q1

[Daniel Schneider, executive]

All right. Good afternoon, everyone in Europe, and good morning to those in the U.S. I'm Dan Schneider, President and CEO of Photocure. Welcome to first quarter 2023 results. Joining me in today's presentation is Erik Dahl, the Chief Financial Officer; and David Moskowitz, Vice President of Investor Relations, who will be translating questions at the end of today's session.Next slide, please, Slide 2. Just to remind for everyone on the call today, disclaimers are in place.Slide 3, please. So I think the headline is a return to growth for both regions, 30% revenue growth or 10% unit growth. Sequentially revenues were up 12% and -- sequentially and Q4 -- in demonstrating the anomaly that we spoke about in Q4. U.S. volume on unit was up 16% and Europe was up 6% year-over-year.Hospital budgets still remain challenging, U.S., Germany, Italy, but we continue to grow the business nonetheless. I think excitingly, 30 new Saphira towers were installed during the quarter, 18 new, 12 upgrades. In addition to new account growth, we believe the upgrade equipment is important to keep physicians engaged in blue light. It's not only the visualization, but it's also the reliability, which we believe is expected to help increase productivity per tower per account.We'll get more to this as the year progresses. It's too early to measure this with any certainty or prove it out, but we will be coming back later this year to support that hypothesis. Just a reminder Q4, there were 24 Rigid and 7 Flex installed, so a total of 57. So, we've had 2 back-to-back huge quarters of installations, which bodes well for the future in sales.On the citizens' petition front for the U.S. in key news and events, the process continues to move forward. The potential FDA comments to Karl Storz will come at the end of May. This is no statutory requirement. There's no requirements in terms of timing. However, we have put a lot of effort behind this. If anyone has gotten on the public comment, you'll see a lot of comments from various parties, stakeholders, manufacturers, patients, patient advocacy groups, KOLs, et cetera.So, we believe we have a reasonable opportunity to encourage the FDA to address this issue of the Class 3 PMA current status of the blue light scopes and moving it to a Class 2. We had great visibility at medical conferences, the largest conferences in the industry, both AUA and EAU over the past 60 days. There were a lot of scientific sessions where blue light was featured.We have a slide for you today to talk about the -- kind of what we did this year versus prior years. I think it was quite astounding. The reception by KOLs and clinicians was very, very good. So we'll talk about that a little bit later today. We also had 2 peer-reviewed publications demonstrating the benefits of BLC.All right next slide, Slide 4. So let's go into segment trends.Slide 5, please. So there's still market challenges. [ TURBT ] procedures appear to be stabilizing from a declining trend in Q4, but the good news is Cysview and Hexvix continue to gain penetration adoption, and especially with new BLC equipment upgrades by all manufacturers. As you are all aware, Richard Wolf has state-of-the-art equipment. Karl Storz's upgrade their equipment both in U.S. and the EAU, and we expect Olympus to upgrade their blue light equipment later this year. We'll talk about that a little bit later.Staffing shortages is still an issue globally. Economics are playing into capital budgets, but we expect this will take -- will resolve over time. The new blue light equipment rollout -- there's broader recognition to benefit of blue light and that is the key driver for continued growth and combat the [ wins ] of staffing shortages.Next slide, Slide 6, please. Both territories back to growth in the quarter with sequential months of solid growth. U.S. quarter was the best in history. Each month in North America was a record month. So momentum continued to build. In Europe, January started off a little bit soft, but momentum build as the quarter progressed. Staffing shortage and strikes are still an issue in parts of Europe, but we expect these to resolve.I think the good news from 1 year ago is we still had limited access in 2022 through May, and we now have full access to accounts here in '23. So we're expecting continued growth in the European market. The growth markets are up 2% year-over-year in quarter 1, and again, expecting this to continue to accelerate as we move to the back half of the year.I want to remind everyone, last year, Q2 in both U.S. and EU were quite strong as we were rebounding from the Omicron on a worldwide basis and the EU had limited access up until the May. So we will -- we are coming up, but we expect a strong second half to this year.Next slide, Slide 7, please. So strong quarter for our U.S. business, 38% revenue growth overall, unit growth of 16%. There was a benefit from the foreign exchange. We had 30 new Saphira installed that's on the back of 57 in Q4, that makes 87 new towers that are out in the market. Of the 18 new towers, 17 were new accounts. One account took 2 towers. We also had 12 upgrades.Overall -- the overall base -- and I think this is something that's quite astounding, 25% of the Rigid towers in North America now are Saphira, which I think bodes well for future growth. Demand remains really, really strong. Our pipeline and the interest is very, very high. In fact, under the old system with Karl Storz, there are only 2 evaluation towers. Evaluation towers are used prior to purchases, gives the accounts a chance to trial the equipment before they buy.We only had 2 with the old standard definition. We have had such a demand that Karl Storz's has increased that for this new version, the Saphira system to a total of 8. That's 3 to 4x the capacity, which bodes well to future installations and purchases, enables more accounts to get into the pipeline, trial the new blue equipment and purchase. And Karl Storz continues to assess the demand and the need for maybe more evaluation towers in the future.There are 2 key activities in North America that I want to speak about today. One is the reclass process in the U.S. and the second is Flex discontinuation by Karl Storz, which I'm sure is on everyone's mind. Let's first talk about the reclassification process in the U.S. The Citizen's petition, we've had great support, as I mentioned, KOLs, equipment manufacturers, patients, patient advocacy groups and actually manufactures of therapeutics, both now and ones -- coming on to the market.We are approaching the 210 days from the filing. So that date is around May 25. There is a potential for Karl Storz to get feedback from the FDA. However, there is no statutory requirement. In other words, the FDA does not have to respond. But given all the pressure and effort we put in behind us, we feel that there is a good probability the FDA is going to respond to this petition.Like anything with the FDA, especially if it's not statutorily required, this could -- we don't have an exact time line on when this process might take place. I think it bodes well that the FDA had already identified several years ago that the blue light cystoscope would qualify for a potential consideration for down classification that was from them. The fact that Karl Storz initiated the process and that we have strongly backed it along with all the stakeholders, I think bodes well.I think in addition, having Flex now being discontinued is a direct impact on patient care in the United States, especially on the eve of a lot of the second-generation therapeutics coming out that are dependent upon the identification of CIS and patients who were suffering from cancer. So there's a lot kind of coming together, and we feel pretty good about, but we do not have -- there's no statutory requirement for response from the FDA, but we will update everyone as things progress, if there's anything to update on.On the Flex discontinuation by Karl Storz, as we mentioned in the Q4, they initially said there would be no installations in 2023. We did have a pipeline of accounts, a very healthy pipeline from Flex. It was continuing to grow in interest as you know. I think on January 2, a paper was published by [ Neoshore ], talking about the economics behind using flexible cystoscopy in the outpatient setting. This is unfortunate situation.They subsequently after that have told us that the entire support for Flex will be discontinued by the end of this year. They're actually targeting October. This does not mean that all Flex will go away. We have a couple of different initiatives in place to keep the existing base going for as long as we can go, but there is an eventual termination of the current Flex system. We are working on an alternative opportunity where we can perhaps work with another manufacturer to bring Flex back into North America and Europe, but we will update you as that progresses.We estimate the Flex sales impact for the new installations that we anticipate this year to have a 2% impact on revenue. But the overall Flex market, which is predominantly U.S., it represents about 5% of our global sales, and it's approximately 14% of the U.S. sales. So, we feel that the effort we're putting behind the Rigid systems and the interest, we believe we can make up a majority of all that, if not all of it.So we'll work hard on that this year. So that is the key to this whole situation. Again, it is unfortunate, but it is fortunately, I guess, in a sense, a small percentage of our total business and one that we think we can make up this year in our Rigid tower business.Next slide, Slide 8. So speaking of towers, we had another good quarter of tower placements despite the unavailability of Flex blue light scopes. There was a pipeline growing interest for Flex, as I mentioned, to detect CIS and BCG unresponsive patients and reimbursement had improved. It's unfortunate situation. We will continue to exploit Flex. We do not believe there was any loss of business in the first quarter.We're not anticipating a major loss of Flex business in the second quarter. But as we move through the year and into '24, there will be a phasing going on. Overall, we grew the installed base of Rigid scopes by 20%. And as I mentioned, now Saphira represents 25% of the installed base in the market, bringing better visualization and reliability in the operating room. We think this is important as image quality and system reliability and the ease of use will support the use of blue light cystoscopy and increase the productivity of our existing accounts to upgrade.Next slide, Slide 9, please. So moving into Europe, Q1 trends in Europe also showed recovery from the Q4 anomaly. We had good growth at 6%, 26% sales growth was the benefit of the German price increase in midyear 2022 and tailwinds of foreign exchange. After taking over the Ipsen territories in Europe during the pandemic, we had to relaunch these countries that were in decline for years.This is extremely difficult in its own right, let alone face COVID in the lack of KOL support and dated equipment. But we believe we have a good handle on this. We've got good traction, and we're expecting strong growth through the second half of this year. The challenges do remain. Europe does have strike issues, staffing issues, et cetera, but we believe we can work through those and we're also coming in a second half.There's the German bus tour which will run in September and October. There's been tremendous interest and you see the picture to the lower right. It will make 20 stops throughout Germany and Austria, and there's even more demand. This is the interest in blue light cystoscopy. They will be surrounded with scientific programs, programs for patients and marketing activities that will take place.All right next slide, Slide 10. So as I mentioned, we redeemed the rights to EU in the midst of COVID and its aftermath. This is a relaunch into what was all, but forgotten regions suffering from the lack of support over the years. There were no -- when we took over the region of Europe -- Continental Europe, there were no KOL support, no data, no new data, old equipment, a long sales process, capital equipment manufacturers who had no relationship with Photocure reimbursement and guidelines that needed improvement.I think we made a lot of good progress over the last 2 years despite the challenges of COVID. We're seeing good signs of growth, especially as we look into second half of this year. EAU -- and we'll get into the Congress in a moment -- had tremendous support and a lot of stage time for blue light cystoscopy. The established businesses of the Nordics and DACH expect to remain steady growth.Denmark and Norway to a lesser degree, although we believe both are tremendous opportunities. For those that are aware, Denmark and Norway are heavy Olympus strongholds. There's tremendous -- what's the word I want to use -- tremendous support by the accounts. They're very loyal to Olympus. Olympus's blue light equipment is woefully behind times. The good news is they are going to launch VISERA 3 the later half of this year and into 2024.It is the latest and greatest and blue light technology. We think this is an exciting development for both Denmark and Norway, and we see them to returning to growth in late '23 and into '24. So that is the good news. France, U.K., Italy, we'll continue to upgrade some of the old Karl Storz equipment, also installing new Richard Wolf and when Olympus comes in the market where it matters, although a lesser degree in Continental Europe, they'll also upgrade to that.There's strong interest in new accounts in U.K. and France. We have a nice pipeline growing behind both of those countries. And we've reversed the curves in all these countries. And I'm just giving you a flavor for this, Italy, through 2000 the CAGR for Italy between 2014 and 2018 was minus 7%. In 2019, it was minus 20%. We picked it up in 2020. In 2022, we grew 2% and so far this year, we're up 12%.The U.K., minus 15% through 2018 CAGR in 2019, minus 10%, in 2022, we're minus 5% and this year, up 30%. France, the CAGR, minus 1% through 2019. We've got 6% in 2022 and plus 17% in '23. And again, reversing the downward trends is a tremendous amount of effort and time. It takes an engagement on all levels. I think the European team has done a fantastic job of doing so, and we're expecting good growth as we move through the second half of this year and into 2024.Let's go to Slide 11, please. Well, I think this slide is the picture tells a thousand words. You see the amount of activity comparative to 2022 and 2021. I will tell you in 2020, 2019, particularly in Europe, there was actually nearly 0, if not completely 0, mentioning of blue light cystoscopy. So we're seeing great success. It indicates the level of exposure we've got at the recent conferences.It doesn't account for activity at our booths or at the booth of Richard Wolf, Karl Storz or even Olympus, who is -- who did have the VISERA 3 there, plus the discussions with other companies where the collaborations could take place in this space. We expect the activity to translate into blue light cystoscopy growth. It is more powerful now that the blue light equipment has been upgraded and KOLs are activated. Should reclassification occur in the U.S., we expect this investment to gain even more traction.So a couple of details. EAU, we had the new global brand rollout, KOL interviews. There were 52 interviews recorded at the booth, some of the who's who, [ Marathon, Paulo, Deshman, Bebchuk, Gakis ], to name a few. Morgan [ Rupret ], I was talking about the photo study. However, we'll get in that in a moment as that was debunked on stage. There is more active interest in PDD and BLC than in any other EAU. The session between Morgan Rupret and [ Rakesh ] was fantastic. Rupret basically debunked the entire photo trial.Subsequent to that, the EAU guidelines have been updated. And for the first time, they actually do list blue light cystoscopy rather than just enhanced visualization. That is a tremendous highlights for the guidelines as it's specific to our technology. So we had a fantastic EAU. Since the photo trial was out there, there have been 8 editorials supporting blue light cystoscopy and the existing evidence for PDD and non-muscle invasive remains valid. It's basically the conclusion. So there was no impact. In fact, it's been quite the opposite.On the AUA side, the Nordic registry provided further evidence for blue light cystoscopy and the flexible -- in the surveillance setting through our U.S. registry. We had a real-world evidence concept session where U.S. BLC registry highlighted us as an example of a successful real-world evidence study. So put up in terms of real-world evidence, things to study in urology, they use our products, Cysview and the patient registry in the U.S. as a real-world evidence of a really well-run registry and the data that can be pulled out of it.We had BLC improving white light resections and it should be used to train residents that actually came out of the photo trial presented by Rakesh. We had the CME event reinforcing the benefits of blue light cystoscopy with videos teaching images of Saphira. And I think what was most interesting is at the end of the session on Sunday, there was a BLC debate, where 2 clinical -- 2 current clinical practicing physicians debated the benefits.One took the white light. Why would you use white light and the importance of the photo trial. The other one took blue light. I will say unequivocally the person who presented blue light did a fantastic job to the point where the follow-up from the white light was -- the white light defender was at the end of it on a follow-up video, basically said, I'm glad I lost, I believe, in blue light cystoscopy. So it was quite impactful AUA and EAU. And I think all of this will bode well for the future of interest in blue light.So with that, we'll move to Slide 12, and I will hand off to Erik Dahl. Erik?

[Erik Dahl, executive]

Thank you, Dan. Well, we'll go through a financial review now, including the consolidated income statement, segment report for the 2 main segments and finally, headlines from the cash flow and the balance sheet. But before we do that, let's talk a little bit about foreign exchange. Norwegian kroner has so I guess, everybody knows, depreciated significantly over the last few weeks and year-over-year and measured by unweighted quarterly average, the U.S. dollar increased 15.6%, and the euro increased 10.5%.And looking at our financials, the year-over-year foreign exchange impact for Q1 was for revenue positive -- approximately NOK 11 million for COGS and operating expenses, negative approximately NOK 10 million and the remainder EBITDA positive approximately NOK 1 million. And keep in mind as we review the financials that unless other currencies specified, all amounts mentioned in this presentation are in Norwegian kroner.So Slide 13, please. Now we're now looking at the consolidated income statement. Total revenue was for the quarter, NOK 106.2 million, which is an increase of NOK 24.6 million or 30% from Q1, 2022. Main drivers, foreign exchange impact of NOK 11 million as well as increased volume and average selling price. Consolidated in-market unit sales increased 8% year-over-year and average selling price was positively impacted by last year price increase in both Germany and U.S. as well as country mix.Total operating expenses, excluding business development expenses, was NOK 100.5 million, an increase of NOK 13.6 million or 16% from Q1, 2022. The increase was mainly driven by foreign exchange, a total of NOK 9 million and the remaining increase, which is approximately 5% reflects the general inflation from Q1, '22 to Q1 this year.Business development expenses were minor in the first quarter this year. Operating expenses within business development are related to the objective to increase our product offering. The expense level, obviously, may vary from quarter-to-quarter given the one-off nature of these expenses.EBITDA in Q1 after business development expenses was negative NOK 1.2 million. This is an improvement of NOK 12.7 million from last year in Q1, and the improvement is revenue driven. Currency impact included in EBITDA is approximately NOK 1 million positive for the quarter.Depreciation and amortization, NOK 6.5 million in Q1. Main cost item is the amortization of the intangible asset related to the return of the European business from Ipsen. The net financial items in Q1, a cost of NOK 2.4 million compared to a net cost of NOK 7.4 million last year. The reduced net cost is driven by gains on foreign exchange and incurred interest income.Tax expenses, NOK 1.6 million for the quarter. The net tax expense is mainly driven by -- in the company items in the parent company and a minor amount for taxes paid in European subsidiaries.After net financial items and tax, we have a net loss in the quarter of NOK 11.7 million compared to a net loss same quarter last year of NOK 22 million. Main single driver to this improvement is improved revenues, combined with flat operating costs adjusted for FX and inflation.Next slide, please, Slide #14. We're looking at segments this time. And in the segment reporting, we will focus on the 2 main segments, namely North America and Europe. North America now includes both U.S. and Canada. Revenue for North America increased 38% in Q1. The drivers are an increase of in-market unit sales of 16% as well as a 3% price increase second half of 2022.Furthermore, FX movements were significant as the value of U.S. dollar appreciated 15.6% year-over-year. Q1 direct costs increased year-over-year with NOK 5.5 million or 15%, and the increase reflects the strengthening of U.S. dollars. The contribution was negative NOK 2.8 million in Q1, an improvement of NOK 5.8 million compared to same quarter last year, and the improvement is revenue driven.And finally, EBITDA, excluding allocated business development expenses, was negative NOK 11.6 million in Q1. Our European business experienced year-over-year and increase revenue of 26%. This is driven by volume, by FX, by price increase and finally, by country mix. In-market unit sales increased 6% year-over-year and sequentially from Q4 with 9% and the price increase of 6% in Germany, middle of 2022 also had a positive impact.And finally, FX movements were significant as the value of euro appreciated [ EUR 10.5 million ] year-over-year -- or 10.5% year-over-year, sorry. Direct costs increased year-over-year with NOK 7.5 million or 35% in the first quarter, and this increase is activity based and partly the result of a different phases or phasing of expenses this year. And finally, foreign exchange and inflation drives expenses above last year.We ended Q1 with a contribution of NOK 29.6 million compared to NOK 24.2 million in 2022. And EBITDA, excluding allocated business development expenses for Q1 was NOK 13.7 million, reflecting an EBITDA margin of 22% compared to 16% Q1 last year.Now let's look at the cash flow and balance sheet. So next slide, please, and that's Slide #15. So, net cash flow from operations, negative NOK 9.1 million in Q1 compared to negative NOK 22.1 million in Q1 last year, and the improvement was mainly EBITDA-driven. Cash flow from investments was in Q1 positive NOK 0.6 million and cash flow from financing in Q1 was negative NOK 13.5 million, which was driven by the repayment of NOK 6.3 million of the term loan from Nordea as well as the Ipsen earn-out repayment of NOK 8 million.The remaining term loan at the end of Q1 was NOK 6.3 million, and this will be paid at the end of Q2. This gives a net cash flow in Q1, negative NOK 22 million compared to negative NOK 37.4 million in Q1 in last year. The year-over-year improvement is mainly driven by improved EBITDA. The net negative cash flow reflects the financial cash flow related to the term loan repayment as well as the Ipsen earnout payment and also the negative working capital development impacts the quarter.Working capital development is normally negative for the first quarter and improving later in the year. Final repayment of the term loan in Q2 and improved working capital will obviously improve the net cash flow second half of the year. And with this net cash flow, we ended Q1 2023 with a cash balance of NOK 246 million.Looking at the balance sheet. We ended the quarter with total assets of NOK 706 million. Non-current assets, was NOK 357 million at the end of Q1, and this included customer relationship were NOK 125 million. The customer relationship is the intangible assets identified in the purchase price allocation for the Ipsen transaction.Non-current assets also include goodwill from the Ipsen transaction of NOK 144 million and a tax asset of $53.6 million. Inventory and receivables were NOK 102.9 million at the end of Q1 and the increase from year-end is driven by increased revenue. Long-term liabilities of NOK 165.6 million include the earn-out liability related to the Ipsen transaction of NOK 133 million. And finally, equity at the end of the quarter was NOK 455 million, 64% of total assets.This concludes the financial section and thank you. Dan, it's back you.

[Daniel Schneider, executive]

Thank you, Erik. Let's move to Slide 17, final 2 slides, right. So just a reminder, overcoming some significant headwinds from 2022, Karl Storz had delayed launch on the new Saphira towers until the end of the year. We installed a tremendous amount of towers in the fourth quarter, and we continued that pace in the first quarter with 87 Saphira towers now in the market -- or 80 towers in the Saphira in the market, which is around 25% of base.There was a COVID resurgence in the first quarter, and of course, the residual effects through 2022 of staffing, et cetera. Some of those residual effects are continuing into 2023, but we believe we're on top of things and more control, and we're expecting things to continue to develop in a positive way. We had revenue growth of 6%. The installed base overall grew 19% and it was all Saphira in the fourth quarter.Despite the delayed launch demand remains high this year as we move forward. There is improvement in U.S. Medicare reimbursement, which we believe will continue to support growth in 2023. And with reimbursement and funding, it's a never-ending battle. We continue to try to improve it, not only in the U.S., but throughout the European countries as well, including guidelines as well.There's a lot of new data from our registries, a treasure trove of data that we believe is going to produce the continued preponderance of data that will make blue light cystoscopy the decision that all clinicians should make going forward. Karl Storz initiated the reclassification process in the U.S. If successful, we'll invite more blue light cystoscopy manufacturers into the U.S. market, creating an opportunity both in improving the technology, but also the competitive pricing of these will certainly have an impact -- a positive impact on the U.S. business.But again, there is no statutory requirement. There is no necessarily clearly defined timeline for this. But I will tell you that the organization has put a tremendous amount of effort and time, and we'll continue to do so to try to push this forward and with Karl Storz supporting it is well, of course. We continue to strengthen partnerships bringing blue light cystoscopy to the rest of the world, looking for opportunities in other countries around the globe.Our cash position remains strong, and we're well capitalized to fund long-term growth. We have a best-of-class product. The guidelines and reimbursement support us in most countries and the U.S. market remains the largest untapped market with less than 10% penetration, we believe, especially with the reclassification that we can really unlock that market as time progresses.Slide 18, so just key milestones. We reiterate our guidance. It's challenging and its going to be this year. We still believe the 65 to 75 Saphira installs is our target, and these are all Rigid, of course. The Flexible pipeline is no longer valid. So we will make it up with all Rigid. Product revenue growth above 20% and generate a positive EBITDA in 2023. We'll continue to grow the base of blue light towers in the U.S. and in Europe, it's our key strategy.We believe that upgrade of image quality and reliability will have a positive impact on the business. We look forward to reporting out that measure later this year. We are proactively supporting that Citizen's petition in the U.S. to reclassify blue light equipment. This is an important step to unlocking the U.S. market. We'll continue to expand geographically in both -- and also penetrating the untapped European markets.We'll continue to present a lot of data. There's been a huge investment in the medical side of our business, particularly in the registry work, and there is a lot of data -- a lot of interest in pulling out some really interesting data around blue life cystoscopy and supporting it as the product of choice when you're doing your cystoscopies.And we'll continue to evaluate product and business opportunities that leverage our organizational strength. We have a global organization, a global footprint in commercial that could be leveraged and we look forward to doing so.So with that, I think we can finish on Slide 19 and go to Q&A.

[David Moskowitz, executive]

Am I on screen?

[Daniel Schneider, executive]

You are.

[David Moskowitz, executive]

So yes, a fair bit of questions. So let me kick it off. First question is, does -- the guidance 65 to 75 towers installed in the U.S. for this year, does that include upgrades or is that just pure new scopes, for example, the 18 placed in Q1, which was pure new?

[Daniel Schneider, executive]

New scopes, it's new Scope. So I mean, thinking about it, if it was everything we put in 30 this quarter, I wouldn't claim that we have half of them. So it is new scopes. One of the key things, so on these new scopes for everyone is we're going to start talking more about new accounts. Scopes are great.It's funny the -- if you get on our website, we have the locator map out there. That was intended for patients who are looking and seeking blue light cystoscopy, who's never met as a direct KPI to the business, although I know it's being used that way. But what's missed in that is it's really the number of accounts and the quality of those accounts is what we're focused on.So, we'll continue to report the scopes. Again, 65 to 75 new scopes this year is our guidance. But we also expect a fair amount of upgrades as we move through this year and into next year. The goal is to have an entire Saphira equipped U.S. market over the next 24 or so months.

[David Moskowitz, executive]

Another question is on -- from an analyst. The MedTech peers appear to be more upbeat about their CapEx and what they're hearing from the hospitals. So the question is, is urology being sort of de-prioritized or prioritized at a lower level versus other procedures or is it blue light that's being de-prioritized or -- at a lower level versus other procedures?

[Daniel Schneider, executive]

Honestly, David, it might be better answered by you. I mean I can start it off with. I could tell you in the world of urology and cystoscopy, it's not a must have procedure. I mean it could be postponed. Certainly, you can extend the period -- surveillance periods, et cetera. But I don't know -- I don't have first-hand knowledge of what you're talking about.

[David Moskowitz, executive]

I will add that we have seen other analyst surveys, in particular, some from the U.S., which actually did show at the end of last year that the urology volumes were actually down relative to other procedures. So echoing what Dan had said is that urology has -- at the end of last year was being de-prioritized. And our own data that we see, which are based on claims, and there's a delay in those because we have to wait for those claims to get adjudicated.We were seeing a decline in the fourth quarter last year. In fact, that's part of the anomaly that we were seeing and why we didn't finish strong in the fourth quarter. I can tell you in my conversations internally, we are seeing a stabilization of that. So in terms of blue light being singled out, in terms of de-prioritization I can tell you, we continue -- and it's in our earnings report that we continue to gain share in both sides of the ocean.So, we continue to beat the market in terms of our penetration. But yes, urology was being de-prioritized at the end of the year. It seems to be stabilized here in the first few months of the year.Another question, moving on to Flex, which is -- we got a fair bit of questions there as well as reclass. How long do you expect for the 69 existing towers to go to 0? What is the company's assumption for that?

[Daniel Schneider, executive]

Well, we will never know for sure until it happens. But we know Karl Storz is in their own right forecasting -- by the end of the year, they'll have run out of parts to support them, and they're no longer going to service them. I'm thinking we can keep a lot -- some of the key guys running into 2024.But where the end is, your guess is as good as mine. But you [ remind ] -- it's 5% of the total global business. It will slowly phase out, but we have an acceleration on the Rigid side happening in both the U.S. and Europe, and we think we can offset that.

[David Moskowitz, executive]

A question on the Phase 3 trial going on in China for Hexvix run by our partner, Asieris. What are the criteria for a successful trial? Maybe you can give us an update on the timeline. But what makes this -- what are the endpoints essentially that make this trial a success?

[Daniel Schneider, executive]

Dave, again, this one you should answer, because I know you were in the background getting the specifics around it. But I will say, on a time line basis, we're trying to prove that blue light is better than white light in a Chinese population. This is very typical in life sciences. Both the Chinese, Japanese, Asian communities will want a specific Asian trial. So we're mimicking past trials, but in the Chinese population.Time line-wise, they have indicated that they believe they'll finish enrollment this summer. They hope to be able to pool the data by the end of the year and submit in early '24 with the [ '24 ] approval. But that's the latest we know from them, they're running the trial.

[David Moskowitz, executive]

So potential Phase 3 data towards the end of the year, and in terms of the endpoints, essentially, the patients serve as their own control. So they'll analyze the patient under white light and then under white light plus blue light to see if they're identifying additional lesions. And as most of you know, blue light typically does catch a number of lesions that white light alone doesn't catch.Secondary endpoint that is key, I think, is the number of CIS lesions, which also most of you know, is the most aggressive form of bladder cancer and blue light is really important for catching those cancers. So not only is it aggressive, but it's also sneaky and lays down flat on the bladder wall, so very hard to identify. So that would be a key secondary endpoint for the trial. And of course, safety, which also -- we have a very good track to safety, but safety is, of course, an important primary endpoint.I think you answered this before, but when do you expect a response from FDA on the down classification? Can you give us a little bit more of a time line? And a tail end to that, that comes from another question is, can you give an indication of the potential impact on Photocure's business once reclassification happens along with the time line?

[Daniel Schneider, executive]

Yes, well, as I mentioned, 210 days from filing. So that puts us in and around May 25. There's no statutory requirement by the government, FDA to respond, down classifications. To give you guidepost, 8 months to 11 years is what has been the history on these. We don't believe we're anywhere near 11 years. We believe -- we've got an opportunity to be closer to the 8-month mark, which means that they will respond favorably. It could be by -- potentially by the end of this year, we could get a favorable decision.But that is completely uncertain and that would probably be a best-case scenario. The impact on the U.S. business will be significant. And I think in the sense of you would have then competition both on the technology. So all the capital [ equipment ] manufacturers would be competing against each other to outsell each other in the category, whereas right now, we have Karl Storz by itself.So there's no external pressure on them to make the best blue light equipment in the world, although I think this latest version is really a good step forward. But you'd have that technological competition and then you'll have price competition. And it's not without saying, Karl Storz realizes it's a monopoly position in the U.S. It prices it like a monopoly position in the U.S., both on the cost of the equipment and also the servicing of the equipment.And I believe that those -- that pricing would come down in a competitive marketplace. So that would be in our estimate what would -- the impact would be. Obviously, you had the majors coming in, the Richard Wolfs, and the Olympuses, et cetera, but there was also a host of other manufacturers, secondaries, et cetera. I call them the secondaries, probably not fair, they probably wouldn't like me calling on that.But not the big, big guys, but guys who want it -- who really want to make a difference in cystoscopy would also come in and put additional pressure on the 3 big manufacturers. So that's it -- but again, time-wise, we're just only -- we'll inform you when we get information there. It could go void of any communication from the FDA for some time, but we're hopeful. And we think all the right things are in place for this from the effort we put into it to the FDA's pre-submission.If you go back to 2016, '17, [ they ] identified blue light cystoscopy as a potential down class device. So they've already pre-identified it. Karl Storz has initiated. That's another key step, and we've started the Citizen's petition and we rounded up all the stakeholders from all categories, not just one category, but patients, patient advocacy, KOLs, equipment manufacturers and therapeutic manufacturers. I mean, that is a tremendous [ swell ] of support from a variety of people who care about patients.And also finally, to underscore this, the termination of Flex in the U.S. is a great podium from which -- for us to speak from. Talking about now Karl Storz in a monopoly position, unable to support their own equipment, has withdrawn from the market at a time when patients need the best technology possible to identify CIS and BCG unresponsive patients in the surveillance setting, and now that equipment is no longer going to be available to them by the end of this year. That's a travesty to be honest with you. I'm hoping the FDA sees it the same way the rest of us see it.

[David Moskowitz, executive]

A question on Saphira -- surgical cancer product, Saphira. What is the market potential? Can you also give us an update on the potential time line for seeing Phase 3 data?

[Daniel Schneider, executive]

Are you talking about Saphira?

[David Moskowitz, executive]

Saphira, yes.

[Daniel Schneider, executive]

I wasn't prepared for that question, David. I would say -- from a Phase 3, I can tell you that they have completed the Phase 3 enrollment. The last patients in I think were towards the end of last year. They're still pulling data together. They're hoping to have a read-out later this year.

[David Moskowitz, executive]

Right. So there's a substantial several months of follow-up to see how the cancer has been eradicated. So yes, towards year-end is what we're hearing. Market potential, as Dan said, we -- it's not our product. We don't have the forecast on that, but potential to be large…

[Daniel Schneider, executive]

Yes, I'm pretty -- we could go back to a press release a few years ago and probably had it in there if someone wants to reference it. I just don't have it with me today, guys. It's not top of mind I got, to be honest with you.

[David Moskowitz, executive]

Here's a question, why are we not seeing a massive buyback of owned shares at these low prices?And the answer is -- we continue to run the business, right?

[Daniel Schneider, executive]

Erik?

[Erik Dahl, executive]

I'll take that one. I mean, we are a growing business. We need to invest in our future. It's my target and my wish always for this company and for the other companies I worked for, that we are able to give dividend or buyback shares depending on what's best. But right now, I think the right thing to do for us is to invest in our future.

[David Moskowitz, executive]

We just covered this one on the reclass and other question there. What is your action plans to address the Flex opportunity in the U.S. and potentially worldwide?

[Daniel Schneider, executive]

Our action plan right now is try to support the ones that are out there by finding third-parties that hopefully can repair or sustain them and then find a partner -- I think I said it in the presentation -- and find a partner out in the market who will produce a blue light flexible system. We'll update everyone when we're successful.

[David Moskowitz, executive]

Getting down to the bottom here, so currency adjusted growth was 17% in the quarter, despite easy comparables. Are you still comfortable with achieving the 20% plus currency adjusted growth this year?

[Daniel Schneider, executive]

I don't know if that was for Erik or me. You didn't say who.

[David Moskowitz, executive]

Yes, I just put that to Erik first.

[Daniel Schneider, executive]

Okay.

[Erik Dahl, executive]

I mean what we're looking at there, let's start with Q1. We have a 30% increase of revenue for the company, that's NOK 24.6 million. If you look at FX alone, that's NOK 11 million out of the NOK 24.6 million. So that's about 13% to 14% of the growth is FX driven, which leaves organic growth to somewhere between 16% and 17%, which is pretty cool as a start for the year. I think that's a good start of the year.And I believe that forms the basis for us to achieve the 20-plus percent that we're talking about. Now in terms of fixed currencies, I think -- when we go back to the guidance, we said 20-plus percent as a headline number with no predictions on FX per se. And still -- and we were still also at that point in time facing significant market challenges, such as staffing shortages, strikes, loss of Flex, but we stand by our guidance, yes, we do.

[David Moskowitz, executive]

OAnd here's actually the last question. How locked in are the physicians to the tower manufacturers? Is it possible for them to switch from Saphira? And if reclassification happens, how likely are they going to want to switch to new manufacturers?

[Daniel Schneider, executive]

Well, the physicians are one piece of it, but they're part of hospital systems and hospital systems have strong relationships with oftentimes what they call prime vendors, key manufacturers that they want to work with. They'll push it and emphasize it and get tremendous discounts. So there's a level of loyalty to also physicians get used to using certain equipment. They just like the ergonomics on it.But having said that, if you believe in blue light technology, in the surveillance setting and what it means to patient care and identifying patients with CIS, BCG-unresponsive, then you will push as a physician your institution because if it's a one and only, that's not generally a problem for institutions to make that exception.And I think I also want to underscore the surveillance setting with blue light cystoscopy, if you think about the fact that Merck's KEYTRUDA is out there now, it's for BCG unresponsive, fairing -- is want to come out -- its gene therapy bladder cancer product. ImmunityBio is coming up on its PDUFA date here in the next couple of weeks, again, another line. UroGen's out there finishing off its Phase 3.I mean there are manufacturers who are looking for patients who are CIS or BCG unresponsive, and there is no better technology in the world than blue light. And that's why it's an imperative. It's a major initiative for us to find an answer for blue light flexible, and we aim to do whatever it takes.And quite frankly, ideally, I'd like to have a proprietary system that we sell the razor and the razor blade. So that's our aim. I don't have any conclusion or anything to announce today, but that is exactly what we're looking for us to be -- to control our own destiny in the surveillance setting.

[David Moskowitz, executive]

Okay, well, that's the bottom of the list of questions. Thank you all for the great questions, and thanks, Dan and Erik. So I'll turn it back over to you, Dan.

[Daniel Schneider, executive]

All right, well, great. Thank you, everyone. Look forward to speaking to you at the Q2 in August. Thank you.

[David Moskowitz, executive]

Thank you.