Photocure ASA

OSE:PHO

Earnings Call Transcript 2019-Q3

[Daniel Schneider, President & CEO]

All right. Well, good morning, everyone. Welcome to Photocure ASA's results for third quarter and first 9 months of 2019. I am Dan Schneider, CEO and President of Photocure. With me today is Erik Dahl, CFO. Usual disclaimers are in effect for today's presentation. So let's start with our strategy. It's been an exciting quarter, a lot has happened and a lot will continue to happen. But the strategy is always good to go back to, so you get a road map for where Photocure is going. This is a 4-step process for us. Step one, the acceleration phase, which is where we are today and why you're sitting in your seats today, and that is how are we progressing with Cysview and Hexvix? Driving the breadth and the depth in the accounts across the U.S., Nordics and Europe. The next step is expanding and expanding could come in many different ways; it's geographies, it's indications, it's product improvements, it's commercial initiatives, all these things intended to expand the use of Cysview and Hexvix in the marketplace. If we get these 2 first stages right, we move to acquire. And this is partner and in-licensing opportunities synergistic already with Photocure's Cysview and Hexvix. We're in the urology suites. Sitting side by side with these uro-oncologists gives us a great opportunity and a great leverage point to attract interested parties. Example of that is Combat Medical that we co-promote or we do promote in the Nordics. And then finally, the transformative stage. This is where we begin building the global bladder cancer company with pipeline through partners and acquisitions. All this is to form Photocure as the world leader in global bladder cancer treatment. But let's take it to where we are today and what we're treating today, and that's non-muscle invasive bladder cancer, sixth most common cancer in the world and very expensive. There are over 700,000 surgical procedures between the U.S. and the EU. There are over 2.2 million surveillance cystoscopies performed in the U.S. and the EU, nearly 3 million opportunities. There are more than a 60% recurrence rate for non-muscle invasive bladder cancer and a 10% to 30% progression rate. It's a USD 3.7 billion medical cost per year. It's a very insidious disease, but very treatable if caught and managed throughout its process. And why is it important? The key therapeutic aim to avoid the progression from non-muscle invasive to muscle invasive is surveillance. On the left, you'll see -- on the right of the graph on the screen, you see muscle -- non-muscle invasive bladder cancer and the progression rates and the survival rates. A 5-year survival rate, if you catch it early, is very good, 98% and 88% for non-muscle invasive bladder cancer. That's where Cysview and Hexvix is being used. That's what it's meant to do, to keep the patients into those 2 categories where their chance of surviving is very, very high. If it's missed, whether under White Light or otherwise, it goes to muscle invasive and it drops drastically, with survival rates after 5 years dropping as far down as 15% for that category. At the bottom, you're looking at the staging for non-muscle invasive bladder cancer, low grade Ta, high-grade Ta, T1 and probably the most dangerous, insidious of them all, CIS, carcinoma in situ. I'll ask that you remember those numbers for carcinoma in situ. This is a recurrence in progression rate. The reoccurrence, chances of it coming back is 43% to 73%. The progression is 50%. If you get carcinoma in situ, the progression is -- could be 50%. The key is finding it, diagnosing it and treating it. Remember that number. So the patient themself comes into the clinic with symptoms. Generally, it's blood in the urine, could be some other symptoms. They visit with a physician who then does a cystoscopy under White Light. Of about 100 patients that might come through the doctor's office complaining of some sort of blood in the urine, about 80%, 85% will show up as non-cancer; about 15% to 20% will have cancer or some version of cancer. They're then referred into -- if they found something that they think is significant, they're referred into the operating room for transurethral bladder resection, where they get in with the scope and they look to see what the -- what is that they think they found. Generally, this is also where they do the staging and the surgical resections. There are about 700,000 procedures in the EU and the U.S.A. After they're dismissed or discharged from the day surgery, they go back into a loop, going back to the physician's office for surveillance follow-ups. If it's high grade, it could be every 3 months for the first 2 years or if it's moderate grade, it'd be every 6 months. This loop between the 2 orange balls continues throughout the rest of their bladder cancer or their life. It's a constant into the OR, if they find something to resect it, back out into surveillance where there's 1.6 million procedures. It's in these 2 orange balls is where the Blue Light Cystoscopy works its magic. Hexvix and Cysview is a drug/device combination for better visual contrast between benign and malignant cells. Hexvix is taken up selectively by cancer cells in the bladder, glowing them bright pink under a blue light. To the right is a typical cystoscope, whether it be KARL STORZ, Olympus or Wolf, reminding you that in the U.S. only KARL STORZ is indicated with Cysview. But in the rest of the world, you have the opportunity to use any one of those 3 capital equipment, which are quite expensive, USD 80,000 to USD 125,000 or more per system. What's key here is that we believe where Cysview works its magic, if you think back to the slide just prior, it works its magic between the TURBT and the surveillance. From the very first time, the physician thinks there's cancer, they're referred into that OR room, that's where Blue Light should be used where proper staging and resection can take place. And then all follow-on surgical and treatments for certainly moderate and severe or high-risk patients, and those are in line with the guidelines today. And what do they see? The key benefits, it's really clear. They improve the patient outcomes, diagnostic accuracy and surgical results, significant reduction in disease reoccurrence, reduction in disease progression and improved cost effective health outcomes. But remember, I said a couple slides ago, remember that progression rate of 50% for CIS. Lower right corner. 35% of the patients with CIS were only found with Cysview. If you can imagine walking into a physician's office or into the OR, and they believe you do not have CIS and you walk out and you don't come back for a year, 2 years, 3 years, the progression rate is 50% to muscle invasive, where the bladder is removed and more aggressive treatment is given. This is where Blue Light Cystoscopy makes its most dramatic impact, and this is what we communicate to physicians. And also additional tumors, 1 out of 4 patients and also papillary is 25% more. It's fantastic results and meaningful -- clinical meaningful benefits. But there's more. And this is exciting, and it's very, very early. As of today, Cysview/Hexvix is a diagnostic or surgical guidance product. However, recent results, although very early stage, show a different kind of potential. There is a potential and we are going to further investigate Hexvix and Cysview and its therapeutic effect. There may be, at least in a rat study and some of the papers that you might find out in publication, and this was presented at Bladder, immunogenic cell death responses and antitumor activation. This would be a big deal because you're moving from diagnostic to therapeutic. If you're doing cystoscopies, why not get the added benefit of Cysview and Hexvix. More to come over the coming months and years. We're positioned for growth, and I'm very excited about this quarter's results for many reasons. First of all, Q3 revenue growth was at 42% with volume increases of 34%. Hexvix and Cysview's global in-market unit sales increased 18% with a year-over-year and a NOK 51.1 million. We've also -- and probably the most dramatic increase has been in the placement of scopes, which is a precursor to getting the kits sold. You get the scope in, you then sell the kits; razor, razorblades. We had a 54% growth year-over-year. There are over 211 cystoscopes now placed in the U.S., 22 of them are Flex approximately 10% of all scopes. And has an increase -- a significant increase of 8 since the last quarter. If you remember, we ended the year last year at 8, and those were mostly some of the clinical sites. We had 3 in the first quarter, 3 in the second quarter, 8 in the third quarter. And then if you remember from prior slides and prior discussions, the cell cycle on these big cystoscope machines can be anywhere from 12 to 18 months. We're just coming in to the closing ends of cell cycle. So we continue to see the potential for this to continue at that trajectory. Accelerated momentum. Now our seventh quarter of record revenues in the U.S. I think I want to point one thing that's very interesting about this slide and why I'm actually quite pleased with quarter 3 results. Take a look at quarter 2 to quarter 3 for '17, quarter 2 to quarter 3 for '18, quarter 2 to quarter 3 for '19, represents about 2% to 3% growth. Tells me that there's probably some level of seasonality in the growth rates that happens during the summer months. In fact, it's 2% to 3%. And if you look at what happened in '19, we actually are on the upper end of that growth rate. So quite pleased with what happened this summer. This is probably the slide that's most telling. This is a precursor, a KPI, a key index for us, how many scopes are being placed out there. In all of 2018, we placed 53. By third quarter, we placed 54 this year, and we have a very, very strong pipeline. We're going to continue to place these in the U.S. market. This represented a significant increase, and this is right in line with our -- the expansion and the focus of the commercial footprint we laid earlier this year in the U.S. Great results. So what is happening in the U.S. in terms of strategy? We're targeting the key hospitals, particularly focused on bladder cancer in the 30 largest MSAs in the U.S., and we've built that foundation, primarily focused on the top 700 centers that influence bladder cancer in their regions. The team consists of 27 Surgical Sales Executives. These are basically your hunters, your herders, they're the ones who are out there getting new accounts. We've added in now a new position, which I spoke about before, the farming position. This is the Clinical Support Specialists. These individuals come in to make sure that when you're starting the process, it's embedded. So key to the process in doing Blue Light Cystoscopy is making sure the installation -- from the time of installation, the patient walking in, all the way through their discharge, every nurse, every doctor knows what has to happen over those course of that couple hours. These individuals make sure that's embedded clearly. They also work side by side with the institutions to increase the number of users per scope and also the number of patients. What we don't have happen is the physician believe that it's only good for high-risk patients. This is a clearly targeted for intermediate and moderate patients and for all patients going into an OR suite. So these clinical support specialists are extremely important as we continue to farm and increase the number of kits per scope that are placed out there. We also have 2 Corporate Account Managers. These individuals are highly leveraged. And what I mean by that is, if these individuals get an account, these are major, major accounts in the U.S., like a Kaiser with 20, 30 different hospitals associated. If you could turn a Kaiser, you're turning multiples of hospitals at one time. And this is a very exciting opportunity for us. In fact, we have Kaiser right now in the middle of a clinical evaluation and their first report came out, we love Blue Light, more to come. It takes time with the big accounts. The average territory size for a rep, we believe peak sales somewhere between $1.5 million and $2 million, that's really based on the number of accounts they can cover and what we believe to be the average number of kits. That may inch up a little bit, but at some point, there -- it gets to be too much for a sales representative to handle, and we may split the territory. Very much like a device organization, you split the territory and you divide into 2, and then they can then farm it and grow it. All future investment would then, of course, be predicated on the optimal account coverage and then return on investment. And I think the other key thing here too is, we have a high focus right now on building a performance-driven culture, one where rewards are only given for results. The opportunity still remains very, very clear, but we have the 5 As in line or in -- lined up. We have the approval that we had hoped for and we have. We have it approved in both the surgical and the surveillance markets. We have the acceptance in all major and local guidelines and including the consensus guidelines that came out earlier this year. We have access, permanent and favorable reimbursement, and I will get to this on another slide. Reimbursement is an ongoing forever effort that a company has to go through in the United States. If you don't keep your foot on the pedal, it could work against you. So obviously, with the results we published just a couple days ago, you can see that we've worked very hard and have improved at reimbursement yet again, still more opportunity to do better. We have activated awareness, patient demand via advocacies groups and media. And then accelerate the commercial investment to optimize the opportunity, which I've talked about. U.S. still remains with a very low penetration rate, but with the greatest opportunity in the world. We have a very supportive environment, and we're increasing awareness every day. We have inclusion of all the major bladder cancer treatment guidelines. We have a high adoption rate at all the cancer centers. We have patient preference, as you've seen in past presentations from the BCAN survey. We have favorable and permanent reimbursement in the U.S. and improved reimbursement in 2020. And we have partnering with prominent patient associations. And actually, at BCAN's think tank that took place in August, they invited physicians, patients, researchers and only a small handful, when I say a small handful, 2 or 3 major manufacturers, at least in their minds, that are focused and care about bladder cancer, and we are prominent there and highly involved. It goes to show you the level of engagement we have in the U.S. market and support we give it. We're increasing awareness through marketing activities, congress attendance, data generation and publications. A couple weeks ago, we published the rat study, which I just mentioned, with the immunogenic and possible therapeutic effects. We also published one on the importance of Blue Light flexible cystoscopy and what it means to patient care. Again, these are very, very important publications and they continue to keep the interest very high in the physician and clinic world. So reimbursement. If I was to take you through U.S. reimbursement, it would probably take me 4 weeks and 24 hours a day. So I'm not going to do that. I'm going to really simplify this slide for you. What we had was on the left, which was relevant procedure codes that were giving a complexity adjustment. They were under reimbursed. In other words, they may have been reimbursed at $1,200 for code 52204 or 52224. What happened, we were working with CMS last year, we're able to move 5214 (sic) [ 52214 ] over onto that category. So now all 3 codes that were under reimbursed in which Blue Light is important, all have a complexity adjustment. The last 3 on the right column, 34, 35 and 40 already are reimbursed at a very high rate. They cover the cost of Cysview Blue Light. So there's no need to -- for the CMS to adjust those. The one that really needed be adjusted was 214. So they took the reimbursement for that and added on the complexity adjustment, and that now makes it an economically favorable procedure. 52000 would never be done with Blue Light. So we're not even considering that. So it's important that you understand that what basically has happened is we've got a very favorable situation. In addition, the complexity adjustment itself went up from $1,187 to $1,247. And I think most importantly, for a White Light versus Blue light, if you're under White light, it's $1,771 in reimbursement, it's over $3,000 if you're using Blue Light. So key to reimbursement access is always going to be making sure the economics don't work against you. This is not necessarily going to be a watershed moment, but it sure makes a lot easier when you go in and talk to an institution or a hospital, say, "Yes, doctor, yes, institution." You are reimbursed at every procedure for Blue Light cystoscopy using the complexity code. So this is really an easy message to give and very easy for them to gather. Cevira license. I was asked by many investors to maybe go into a little more depth of this, so I thought I'd do that today. So couple things that I'll just remind everyone. Asieris is a subsidiary of a Chinese-based -- China company, Jiangsu Yahong Meditech company. It's a specialty pharma company, it's privately owned. But they're focused on the research, development and commercialization of innovative new medical treatments of their own -- through their own IP and in-licensing, and particularly focused on genitourinary diseases. They've built strong capabilities. They actually have their own leading candidate. It's an oral non-muscle invasive bladder cancer treatment. It's in registrational trials in China, and it's in a Phase Ib in the U.S., their intention is to come into U.S. If you think back to the original slide on strategy, this could potentially be an opportunity for us to promote in the U.S. Cevira itself has the potential to fill a high met-un (sic) [ unmet ] need for the treatment -- surgical need -- the unmet need for nonsurgical treatment of HPV and CIN populations. It's a breakthrough, single-use, integrated drug delivery device technology. It's easy and convenient for providers to use, and its potential to treat high-grade cervical dysplasia, independent of HPV genotype. I think what's really important about this product is, if you think about women in childbearing years, going under lasers and surgical procedures is not good. It puts future child rearing or carrying abilities at risk. This is a nonsurgical treatment. So it preserves the cervix. And that's very important to women, maybe in their 20s and 30s, certainly and early 40s. Under license agreement, Photocure will receive a total signing fee of $5 million. We received $1 million at the signature back in July. We received another $2 million in October. The balance is due the end of this quarter, fourth quarter. And we are confident that, that is going to be paid. In fact, the first 2 payments were made early. So we're in good shape. Upon the last transfer of the money, they then have full rights to development. So until then, they're working through their CTAs, clinical trial applications, but they will have full development ownership at that point. Upon the approval indication result in an $18 million payment for China and $36 million for the U.S. and EU. A second indication in China and the EU, would have payments up to $14 million, and of course, streaming royalties and milestones on commercial activities. So this is how it looks without putting all the dollars to it. But what I will say is that the deal itself, $250 million deal, is really loaded on what you would expect, which is the approval and the commercialization of the products. Every deal would be done that way. Otherwise, where is the real value here for them because it's all costs on the front end. So the upfront signing fee is a $5 million fee. The next phase is the approval of the clinical trial application by the Chinese authorities that will trigger another payment or 24 or 9 months. So whatever comes first. We then go dosing the first patient. Again, within 24 months or the dosing of the first patient, another payment is made. And then at 34 months or study endpoint, we then have another payment trigger. And then at 48 months or the dosing of the first patient in the U.S., we have a trigger of another payment and then there's acceptance one, acceptance and approval fees that I mentioned before. All these dollar signs that are through the middle from the gray area down to the very bottom, those are single digit millions. Not big, big money, but significant money for a company of our size. Where the real money comes in is at the very top and particularly where the arrow goes off to the right where the royalties and milestones kick in. So we are working close tandem with them. In fact, an ex-employee who led R&D for Photocure and was on this project is actually consulting for them, and we put her in that position. So we've got really good synergies and fast-moving pace on this development. So it's more to come, and I'll keep updating you. All right. I'm going to turn it over to Erik.

[Erik Dahl, Chief Financial Officer]

Thank you, Dan. Well, as usual, we will review -- in the financial review, look at the segment reporting, we will look at the consolidated financials, cash flow, obviously, and then finalizing with the balance sheet. Before we get that far, a couple of comments on the foreign exchange. Obviously, we've seen that Norwegian krone has been moving significantly over the last few months. And looking at third quarter separately, we will see that we have a positive impact on revenue of about NOK 2 million and a positive impact on EBITDA of about NOK 1 million. If you look at the year-to-date numbers, the revenue impact is about NOK 6 million, but we will be neutral on the EBITDA side. We also have an IFRS adjustment to talk about, and that's the IFRS 16 for lease accounting. And the financial impact of that is that we're actually moving lease payments from operating expenses down to amortization. And the amount that has been moved year-to-date is approximately NOK 2.5 million to NOK 3 million. All amounts in this presentation will be in Norwegian kroner, unless we mentioned another currency. Starting with the segment performance. Looking at third quarter, 3 headlines. First of all, we continue a strong revenue growth in U.S.; secondly, we continue the investments that we do in the commercial activities in U.S.; and finally, we have a positive EBITDA as we have had the last many quarters. Total Hexvix/Cysview revenues in third quarter increased 18% compared to third quarter 2018. Year-to-date growth was 22% and measured in fixed currency or constant currency, we have a growth of 17% year-to-date. And the in-market unit sales increased 6% year-to-date and as well as for the quarter. Continued strong growth in U.S., 42% revenue growth in third quarter and 45% revenue growth year-to-date, and this is measured in U.S. dollars. This was driven in growth in in-market unit sales by 34% in the third quarter and 37% year-to-date. U.S. is the largest and the fastest-growing region for Photocure with a revenue growth driven by improved productivity as well as added sales resources. Furthermore, we've had a significant growth in installed base of cystoscopes in the quarter and also year-to-date. We have at the end of the quarter, 211 cystoscopes installed. That's a growth of 74 cystoscopes during the last 12 months or 54% year-over-year. And we've never seen -- never before seen these kind of growth rates in terms of installed cystoscopes. And this, I mean obviously is a positive signal, and it drives significant future revenue growth for us. Nordic revenues declined 7% in the quarter, but we have an increase of 1% year-to-date. In constant currencies, revenue was flat compared to prior year. The decline in third quarter followed a very strong development in the first half of the year. Revenues from partner business declined 2% in Q3, following a strong first half of the year. Year-to-date, the revenue increased 4%, and in constant currencies, revenue increased 2% year-to-date. The year-to-date increase is driven by Ipsen's main markets, which is, obviously, Germany and France, but it's also driven by our partnership in Canada, where we have a partnership agreement with BioSyent. In-market unit sales for partner business increased 4% in the third quarter and 3% year-to-date. And all in all, we have a positive development for the partner business in the third quarter, so it's improving gradually. Total revenue, including milestones and other sales, increased 17% in the third quarter and 20% year-to-date. And other revenues include for 2019 as well as 2018 and IFRS 15 adjustment of NOK 0.8 million in the quarter and NOK 2.5 million year-to-date. And in addition, the company received in second quarter a milestone payment from Bellus Medical for Allumera, which totaled NOK 2.4 million. That was the second quarter of 2018. Operating expenses, excluding depreciation and amortization increased year-over-year 15% in the third quarter. Year-to-date growth was 22%. This increase was planned and is driven by planned sales and marketing costs in U.S. The quarterly operating expenses in the commercial segment has over the last 4 quarters been at the same level between NOK 44 million and NOK 47 million. So in a way, the sales and marketing spending also in the commercial segment has stabilized over the last quarters. EBITDA for the commercial segment NOK 2.6 million in Q3 and NOK 5.7 million year-to-date, and the EBITDA margin year-to-date was about 4%. Looking at the financials of the development portfolio. This is driven by the sign-on payment from Asieris in third quarter of $1 million. So far in Q4, we have received an additional $2 million from Asieris, and we expect to receive the remaining $2 million at the end of the quarter. Operating cost in the development portfolio continued to decline. The reduction from last year was 33% in the quarter and 24% year-to-date, and this includes the impact from one-off costs related to the signing of the license agreement with Asieris. We expect to have limited costs related to Cevira going forward. We will, however, have some costs related to IP spending, our IP and as well as maintenance of the patent portfolio, and that may also incur some costs related to alliance management. And we have, in 2019, obviously, very limited costs related to Visonac, and this will gradually reduce to 0 over time. In total, for the development portfolio, we had fully loaded cost year-to-date of NOK 10.2 million compared to last year year-to-date of NOK 13.5 million. So there is a decline. Looking at the consolidated income statement. We discussed the revenue on the previous slide, but I think on this slide that I'd like to add some comments on the operating expenses. And operating expenses increased year-over-year 10% in the third quarter. And the increase has been driven by planned increase in sales and marketing costs in the U.S. In constant currencies, the increase was approximately 6% year-over-year. This is significantly below the growth rates we have seen in previous quarters. As you will see from the chart at the bottom right corner of the slide, the operating costs have been relatively flat over the last 4 quarters and between NOK 48 million and NOK 51 million. So it's stabilizing, but is still a growth -- a slow growth. Year-to-date operating costs were 17% above prior year, and in constant currencies, approximately 11% above prior year. Year-to-date EBITDA NOK 4.2 million compared to negative NOK 6.4 million last year. Both the 2018 as well as the 2019 EBITDA are, however, impacted by one-off milestones and also sign-on fees. 2000 (sic) [ 2019 ] EBITDA is impacted by a one-off milestone from Bellus Medical of NOK 2.4 million. And the 2019 EBITDA includes a sign-on payment from Asieris of $1 million, which equals NOK 8.7 million. So if you adjust for these 2 one-off elements, the EBITDA improvement year-to-date year-over-year is NOK 4.3 million. So both with and without Asieris included in the numbers, we are financially moving in the right direction. Depreciation and amortization year-to-date NOK 12.4 million. The increase from last year of NOK 2.6 million is driven by the IFRS 16 lease accounting. Main single item within depreciation and amortization is the amortization of the investment in the Cysview Phase III program. This item has a quarterly amortization of NOK 2.5 million. This project is now closed, obviously, and the remaining amount, which is net of amortization is -- was NOK 12.1 million at the end of the quarter, and this amount will be fully amortized during 2020. Restructuring expenses in 2018, it was incurred in second quarter last year and was driven by organizational changes, including reducing headcount with 5. The changes were done to streamline the organization and to increase the focus on commercial targets. After net financial items and tax, we have a year-to-date net loss of NOK 10.7 million compared to a net loss last year of NOK 24.7 million. Cash flow. Overall, we see a cash flow which is very much influenced by the impact of operational improvements as well, obviously, by the payment Asieris of NOK 8.7 million. Net cash flow from operations, positive NOK 9.9 million in the third quarter compared to negative NOK 5.3 million last year. Year-to-date cash flow from operations was negative NOK 9.8 million compared to last year negative NOK 35 million. Both quarter and year-to-date cash flow includes the payment of -- from Asieris of NOK 8.7 million. In addition to the payment from Asieris, the cash flow has improved due to operational improvements as well as the restructuring we did in 2018. Cash flow from investments, year-to-date positive NOK 0.6 million compared to negative NOK 0.7 million last year. Improvement is driven by reduced investments in assets, including development expenses. Cash flow from financing, year-to-date negative NOK 1.8 million compared to negative NOK 0.6 million last year. Year-to-date 2019 cash flow includes the payments of lease liability of NOK 2.4 million, which is a result, obviously, of the IFRS 16. Net cash flow, positive NOK 9.2 million in the quarter compared to negative NOK 5.1 million last year. Year-to-date net cash flow was negative NOK 10.9 million, which is an improvement of NOK 25.6 million from last year. And this gives us a cash balance at the end of the quarter of NOK 95 million, NOK 96 million.Balance sheet, few comments. Total assets of NOK 216 million at the end of the quarter, which includes cash totaling NOK 95.9 million. Noncurrent assets, NOK 73 million at the quarter end, and this includes a tax asset of NOK 49 million and investments in tangible and intangible assets totaling NOK 16.1 million. These investments are mainly related to intangible assets from the Cysview Phase III program. We also find an other line totaling NOK 8 million as a part of noncurrent assets. This mainly relates to the balance sheet impact of adoption of IFRS 16 on lease accounting from January 1, 2019. And then you will find an explanation to the IFRS 16 in Note #1 and 3 to the accounts. Current assets, excluding cash, NOK 47.6 million at quarter end, pretty much at the same level as we had at year-end last year. And in terms of funding, we had, at the end of the third quarter, no interest-bearing debt, and we had an equity of NOK 166 million, which is 77% of total assets. Finalize with a short summary on how I see the third quarter financials, the high level implication and takeaways from third quarter. First of all, we see that our investments in the U.S. commercial activities continue to drive significant revenue growth. Year-to-date revenue growth in U.S. measured in dollars was 45%. This growth is mainly increased by -- is driven by increased volume. Secondly, looking at operating cost, these have remained stable over the last 4 quarters in spite of significant investments in the U.S. commercial activities. And year-to-date increase in operating cost has been 11% measured in constant currencies. And finally, both with and without the payment from Asieris, we have improved EBITDA, and we have improved the cash flow for the company. And the year-to-date net cash flow has improved with NOK 25.6 million from last year. And this concludes my part of the presentation. Please, Dan.

[Daniel Schneider, President & CEO]

Thank you. All right. Accelerate, expand, acquire, transform. This is my -- about my year anniversary here at Photocure. It's a very different company than it was a year ago. From a cultural perspective, it is moving very rapidly to a performance-based culture. Where expectations are high, rewards will also meet those expectations. We are fortunate to recruit Geoffrey Coy into the organization, who now leads the U.S. There is rapid movement and change in the U.S. taking place to continue to fuel the growth that we expect and want out of this. It all comes in phase 1 or stage 1 with accelerate, the ability to expand, as I discussed today, whether it's commercial initiatives, product improvements, enhancements of that sort, new geographies that are available worldwide where there's interest in Blue Light Cystoscopy, we will pursue. And then it's the acquire and transform phase, but we got to get the first 2 right. We maintain our guidance today at $20 million to $25 million in 2020 with significant and sustainable revenue growth in the U.S. market beyond 2020. I thank you for today, and I'll open up for questions.

[Daniel Schneider, President & CEO]

Yes?

[Unknown Shareholder]

[ Andre Emerson ], shareholder. At the presentation earlier this year, you said that you were investigating alternatives to -- for U.S. investors to more easily invest in Photocure. Is there any progress on that?

[Daniel Schneider, President & CEO]

It's -- we still are pursuing opportunities. We're still considering. The question, ultimate question is the dual listing. It's still, obviously, a consideration for the company. It's not the right timing for us right here today. We do go and speak with U.S. investors. I was in New York presenting. We'll go to JP Morgan and present. I think there are some things that will trigger that decision in the future. Any other questions?

[Erik Dahl, Chief Financial Officer]

There is a few questions on the web, and it relates to what you have already commented and that's obviously the target for U.S. revenue in 2020 next year.

[Daniel Schneider, President & CEO]

Right. Right. So it still remains today at USD 20 million to USD 25 million for next year 2020. It's still a significant growth rate for the U.S., but we believe it's an achievable growth rate. So if we decide to make a future prediction, it'll come probably first quarter next year of guidance going out further than that, but we're looking at the numbers very closely. Yes?

[Unknown Shareholder]

Regarding the therapeutic effect or possible therapeutic effect, can you comment a bit more about how you will pursue it? And if it will help? How we will finance it? How we'll move [ further ]?

[Daniel Schneider, President & CEO]

Yes, yes. And so at this point, it's very, very early stage. The rat model that we presented at Bladder that will eventually then find its way into a publication first half of next year, which will then stimulate a lot of interest, we think, in the community. And again, yes, there's been paperwork out there, a couple people commenting, like Dr. Gakis, who said there's something going on here with the hexaminolevulinate. If we are moving forward, we'll take a look at the financing we required or a partnership, if that were the case. But at this point, it's low-cost experiments. And part of this is gaining the interest and getting this information on the public domain in the clinician's minds and getting them to think about it and say, "Wow, if I'm doing cystoscopy, and I got the dual effect of diagnostic and therapeutic, why wouldn't I use Blue Light?" But to pursue a full-blown label change and all that, we would come back to you with what our full-blown plans are. We're not prepared for that today, but it's interesting, very interesting. Any more questions? Oh, everybody else can go home.

[Unknown Shareholder]

Sorry, this is my last question.

[Daniel Schneider, President & CEO]

Okay.

[Unknown Shareholder]

Do you have any indications or will you receive any indications whether or not you will receive grade A recommendation in the guidelines? Will you know?

[Daniel Schneider, President & CEO]

Oh, okay, grade A. So the guidelines, they give various grading C, B, A. We have a B. In fact, all 38 of the non-muscle invasive bladder cancer treatments have a B or below. So nobody's got an A. I don't believe we're going to get an A. To get an A, I don't even know if it would be possible. You'd have to probably do another clinical trial, and I don't think anyone needs to invest to do a clinical trial to get a grade A. We've got a great position right now. In fact, if you look at BCG, which is a standard of care in non-muscle invasive bladder cancer, grade B. So everything -- grade B is actually a great place to be. I think that there's a couple complicating factors for our product. One is that right now it's indicated only with KARL STORZ equipment. So it would be hard to give it a grade A which says, "You must use it," right. Because then you'd have to tell every hospital out there to go spend $125,000 times however many machines they need. I think that would probably be tough at this point unless it had a miraculous effect. The second part of that is that -- oh, gosh, I just lost my train of thought. Oh, from a physician standpoint, on guidelines, guidelines are very important. From an institutional standpoint, guidelines are important. But the end of the day, a physician does make an individual patient choice. So you can never really completely force a guideline, certainly not in the U.S., down the throats of the physicians, but having a high grade like a B or an A in some circumstances would -- is very helpful. So a B is a very good place to be. There's no shame in having a B, it's actually very good for non-muscle invasive. We joined the other ones. NBI does not, has a C. So and I don't think that's going to change for them. So I think we're in a very good position. And the key for us to taking those national guidelines, AUA, EAU, SUO or the consensus guidelines. And what we try to do is we try to drive them through our Surgical Sales Executives and our medical team into the large institutions, right. So they need to figure out and adopt where does Blue Light come into, where it’s come into practice? And we want it, as I mentioned, in the very first term, so they've gone to the physician, the physician finds there's something not right, they're going to schedule them into the OR. We want that very first TURBT to be with Blue Light. And then for high-risk and moderate -- medium-risk patients, we want every TURBT and surveillance cystoscopy to always be done with Blue Light. And that's in line with the guidelines. So that is what we promote. And that is a tremendous size of a market for us. So and it's a very logical market for us to go after. Does that help? Yes?

[Unknown Shareholder]

I'm [indiscernible], I'm a shareholder for many years. And I would like to hear something more about frequency of use. Are you monitoring how often each cystoscope are being used? And...

[Daniel Schneider, President & CEO]

Yes. We do. So and I get that -- asked that question quite often. So couple things. It's a little more complicated. But I'll kind of take you historically and then where we are today and then kind of how it moves forward. So historically, what we -- what I know about the way we have placed scopes is, we have placed wherever we could in low-hanging fruit. And they may or may not been the best places. And then we had turnover in the sales force, so scopes were going -- placed, but then weren't being used. One of the major initiatives Geoff Coy has right now is going through every institution and finding out if that scope is not delivering the number of kits or number of patients we expect it to have to churn the patients. The difficult part is, what does the typical scope do? It depends on the size of the institution and the number of patients that go through it. It also depends on when they place the scope. So in other words, if I have 10 patients and that's as many patients as I can treat with Blue Light, and I have 1 scope. And all of a sudden, one more patient comes in, I got to buy a second scope. Now it looks like I got 2 scopes and they're doing 5.5 patients each. So it takes time to build that patient base up behind each scope. But we do have levels of expectation. It takes -- approximately, you can do about a patient an hour or so in an OR setting. If there are enough Blue Light type patients, and not every patient's Blue Light eligible for various reasons, they should be able to do 6, 7, 8, probably patients a day. But some of this has related to the physicians using it. So if it's 1 physician, and they're not just sitting in 1 OR all day, they're moving between suites. They're doing the Blue Light here, then they go over here and they do something else and they come back and finish the Blue -- it's a lot going on in the OR. There's multiple ORs going on. So we're constantly looking for efficient ways to help the physicians so we can churn more patients, more kits per scope. But we do look at it very closely and the pressure. And that's part of what the CSS', the Clinical Support Specialists role is, is to increase the patients and the physicians using a scope, to increase that volume going through per scope. And it doesn't do them any good to have a $125,000 piece of equipment, and it sits in a room with dust. So we're all over that. And I think the other part, just add one more is, we're much more methodical. We've been much more methodical in the last year. When we start a new account -- in the past, we'd start a new account, thing would get placed, we'd be like, great, magic will happen, it doesn't. It just doesn't. You have to be in those accounts constantly. And I'll explain why the CSS, again, is important in this. So you have to be in accounts constantly. You've got to make sure you set those accounts up correctly. As I said, the patient comes in that door, from the time they go in the door to the time they leave, every person who touches them in that hospital has to know what the process is, from the entry nurse who takes down their name and puts them in the system to the preop nurses who are putting in installation to the -- perhaps the nurses in the waiting room waiting with them till they are brought into the OR. There's time elements to all this through the procedure, then on discharge and then out the door. That has to be very, very methodically processed through. So this is where the CSSs come in and why they're so important. That takes a lot of time. And you can imagine, from a surgical sales executive who's out there trying to sell, trying to get the champions, trying to get to the C-suite, trying to get to the capital equipment guys, if they're sitting in a hospital all day long, sitting through 4 or 5 cases, they can't sell anymore. So we've got them sitting -- and they're just trying to work process. So these CSSs we brought in are there to do that. They're there to make sure process is always moving, that if nurse Anne goes down, nurse Mary is there to pick right up where the process let off and keep going. Where it goes wrong is where not everyone is informed. And so we are very, very methodical, very, very deliberate now in how we set up our accounts and then make sure the process goes the way we expect it to go. And also then monitoring equipment that can break down at any given time, too. And working very closely with KARL STORZ, who I think I mentioned had gone through a reorg at the beginning of this year, and they now have a genitourinary focused division, which we interact with directly. Before I'd with giant KARL STORZ, now there's a clear -- Mike Lyman and his team of couple hundred people are the people that we focus with and they're partnering with and making sure the equipment is always working. And if it's not working, getting it fixed. And if they don't have enough equipment, buy extras. So we are all off it -- all over it, performance-based culture.

[Erik Dahl, Chief Financial Officer]

I have one more for me right here.

[Daniel Schneider, President & CEO]

He's got one, live one.

[Erik Dahl, Chief Financial Officer]

Oh, please.

[Unknown Analyst]

[indiscernible], Pareto Securities. You mentioned in the expansion phase an ambition to target new geographies, and what's your take on the Asian market?

[Daniel Schneider, President & CEO]

Good. There is interest in Asia market, China, Korea. So we are investigating and having conversations with companies. So more to come. Yes. And I think...

[Unknown Analyst]

[ Would it be a partner ] strategy?

[Daniel Schneider, President & CEO]

Yes, yes. We'd be -- definitely with partner strategy, especially in China and Korea. It -- with China, you got to make sure you get the right partner, and we want to make sure we have the right partner. And quite frankly, we have agreement with Asieris for Cevira, if they're building commercial capabilities that could be a quid pro quo, so to speak, we'll take their product in U.S., they would take ours on China. I'm not saying that is any -- that's not a deal, but these are the ways you're thinking about these deals and saying, "Got a great relationship, we trust each other, we can work with each other, maybe we enter China through Asieris." They're not ready for it today, but that could be a possibility. There's other interest, though, as well. Korea as well, some of the other Asian countries. Yes. A lot of those countries, by the way, and -- if you go back in history, were Ipsen territories. And we've recently got them back in the last year or 2. And so now we're pursuing them. Before that, Ipsen if had all the rights, we couldn't pursue those countries, same in South America as well. So we're getting them -- trying to get the rights back to some of these countries to expand the geography and get Blue Light to the rest of the world. Okay.

[Erik Dahl, Chief Financial Officer]

And that was the question on the web as well.

[Daniel Schneider, President & CEO]

I think it was his question. He wanted to make sure it got answered.

[Erik Dahl, Chief Financial Officer]

Oh.

[Daniel Schneider, President & CEO]

All right. Any more questions? All right. Well, thank you. We'll all see you next year at the quarter 4 and the year results. Thank you very much for today.

[Erik Dahl, Chief Financial Officer]

Thank you.