Well, good morning, good afternoon, everyone. This is Dan Schneider, President and CEO of Photocure. With me today is Erik Dahl, our Chief Financial Officer, and David Moskowitz, our Vice President, Investor Relations. Welcome to Photocure ASA 2Q 2023 results. Just a reminder, usual disclaimers are in effect for today's presentation. All right, if you recall on our earnings call in Q1, we discussed two headwinds heading into Q2: the expected phase down of Flex BLC, Blue Light Cystoscopy, and the difficult year-over-year comparison, primarily the German hospital stocking that occurred last year in front of the price increase in the European business, and also the snapback from the Omicron phase of COVID. Keep that in mind.
I think overall, the results were good, and despite those headwinds, we had 16% revenue growth in Q2, with positive EBITDA from our commercial operations. Importantly, on a sequential basis, both our North American and European businesses grew off a strong quarter that we reported in Q1. Sequentially, revenues were up 9%, with unit volume up 6% compared to Q1. We continue to expand the base of Rigid towers, Saphira, in the U.S. during the quarter, with 13 installations. 18 were for new accounts, five for upgrades, and we'll get into this, but this was in a non-promotional quarter for Karl Storz , and we'll talk about that in a moment. We believe some of the customers did defer their purchases and ultimate installations into Q3 and the rest of the year.
Kicking off Q3, however, Karl Storz shared with us, and they don't typically do this, there were 40 quotes sent to customers in the month of July alone. We know this, this discount program of 20% off towers and 30% off camera heads, approximately, it really generated a lot of interest. It has resulted in 12 purchase orders, so these are quotes that have now made it through the capital budgeting system of hospitals and have now moved to, to, to the purchase and then ultimately the installation and the use of blue light for the second half of 2023. We believe this is going to bode very well for the rest of the year.
This promotion they're running for 3rd quarter, which began the beginning of July, intended to end the end September, there is a good chance they will run it to the end of the year. They've, they've indicated that as such. If we go to panel two, we received a $2.5 million milestone from Asieris for the Survivor program. This was a time, timestamp on the program itself. It drove EBITDA to NOK 23.4 million in the quarter. Notably, we are containing our expenses, with operating costs roughly level for the last seven quarters, excluding the impact of foreign exchange and business development expenses. We're, we're, we are working on the leveraging of the base business. We had positive cash flow, enabling us to fully pay off our term debt and increased our cash balance to hun- NOK 259 million .
We remain fully funded to run the current business into the future. Panel 3, key news and events. We also had a good news flow for the quarter. May 2nd, the Nordic Registry clinical data and multiple scientific programs at AUA 2023 Congress reinforced the benefits of Blue Light Cystoscopy. The conclusion was BLC in the surveillance of non-muscle invasive bladder cancer may reduce patients' tumors burdens through immediate fulguration. On May 4th, a new publication, clinical data demonstrates reduced risk of recurrence and non-muscle invasive bladder cancer with the use of BLC. This is a VA BRAVO publication in a peer-reviewed journal called Clinical Genitourinary Cancer on April 28th. The conclusion, significant decrease in the risk of recurrence and prolonged time to recurrence for Blue Light Cystoscopy versus white light cystoscopy.
On May 11th, a new publication again reinforced the clinical benefits of Blue Light Cystoscopy, demonstrating improvement in detection of carcinoma in situ, the flat lesions. The conclusion was simple. It was that Hexvix provides superior detection and diagnosis of carcinoma in situ in patients with previously white light cystoscopy. When you think about this, and I want, I want to kind of put this in everyone's mind, you know, bladder cancer has suddenly gained a lot of attention from the therapeutic manufacturers and developers. You know, of Merck's Keytruda, ImmunityBio has their product, which, which is pending approval of CMC issues. There are several others. UroGen announced their data. Many of these future therapeutics are meant to treat refractory patients, i.e., patients who are not responding to BCG and/or patients who are CIS.
The importance of Blue Light Cystoscopy in the detection of CIS is going to become increasingly important, and we believe is a, is a, a catalyst for Photocure in the future. On July 6th, post-period, our partner, Asieris, announced the completion of enrollment for Hexvix phase III clinical trial in China. The data are locked, and we're expecting top-line results in the near future. Lastly, but not least, the process remains ongoing for Karl Storz 's petition to reclassify the BLC equipment from Class III to Class II. On July 31st, upon the request of Photocure, we met with the FDA in what's called a Q-Sub meeting, to discuss the implications of Class III and withdraw Flex off the market. I'm happy to report the FDA was highly engaged with over 16 FDA representatives across devices, therapeutics, urology, et cetera.
It was a late on a Friday, a large, a major U.S. holiday, the June 30th. The afternoon before a major holiday, these folks were all available, and they were listening. We are now subsequently aware the FDA have reached out to Karl Storz . We think all of this bodes very, very well. It's caught their attention that blue light cystoscopes, as a Class III, need to be addressed. This is not a statutory requirement for any timelines. I know that's what everyone's hoping for. There's no requirement from the FDA to do anything, but we think that the fact that 16 individuals showed up on a holiday weekend to listen to the story about the safety of the product, the facts that it was used in Europe, by...
it's being distributed in Europe by three different manufacturers, and that, and that it has implications for patient care, and that Flex was withdrawn because of that Class III designation and the ability to get the supplies that it needs to repair itself. I think all of these things bode very, very well. We, we will continue to update you on the progress that we make. All right, going to segments. Here, graphically, we see both successes and challenges in the second quarter. In the U.S., we continued to grow despite the phase-down of the use of Flex BLC. In our accounts that have only one Flex tower, kit sales were down 31%, so these are accounts that have only Flex. We have many accounts that have both Flex and Rigid.
It's very difficult to measure because the kits go into the system, the hospital, and then they can go to either using for Flex surveillance or for Rigid. In those that are only Flex, the kit sales are down 31% for the from the first quarter this year. As you recall, Karl Storz has announced that they've ceased selling any additional Flex blue light towers, and they've also ceased or will be ceasing servicing any existing installed Flex towers by the fourth quarter. We estimate that our unit volume growth of Rigid towers grew in the low double digits, both year-on-year on a sequential basis. We have to make assumption the percentage of use of flexible cystoscopy in our accounts that have both Flex and Rigid towers.
Importantly, we estimate that this low double-digit growth will more than offset the decline of Flex sales going forward. We also see gaining momentum as well in the Rigid market. In Europe, the graphic on the right, the asterisk, illustrates the inventory stocking that occurred in Germany last year. However, we will manage to grow the business off the positive Q1 results earlier this year. Reminding you, last year, Germany grew at 3%, and this year, first half, we've grown at 7%, taking out all effects of stocking. I think this is illustrating the ability to move a major market that's already highly penetrated. We're also starting to gain, we'll get into this in the European data, some traction in some of the other countries as well.
We're, we're seeing some good year-on-year growth beginning. Highlighting the quarter in the U.S., we grew the business 19% during Q2. Volume growth not only was impacted by the phase-out of Flex, but we're up against a tough comparison due to the snapback in 2022 of Omicron in first quarter. Again, we're mildly pleased with the increase in installed base. I think you have to take in the context that there was no promotional discounts offered by Karl Storz , and the fact that they were aware they were gonna launch a promotional effort by mid-quarter. You can only imagine both customers and their sales reps were gonna hold orders until third quarter, but we still are pleased with what we were able to do with 13, eight new.
Also, I think it's notable, the first half of this year marks the most productive first half of Rigid installs in Photocure's history, with 26 in total. Said another way, we never in the first half of any year, prior year, installed more than more than that. That, I think, is, is notable. And especially if you think back to Q4 and how many installations there were once we launched the Saphira, and how hard we worked to get those in the beginning of, you know, before the year began. As I mentioned previously, Q3 is off to a strong start with Rigid tower sales. We have a record 40 quotes sent in July alone, and this is the beginning of a three-month promo. The pipeline remains strong, solidifying our confidence in the guidance.
We expect that we will meet our guidance of 65-75 new tower installs this year. We've already talked about two key activities, the Citizen's Petition, and the Q-Sub meeting that we subsequently have had. Subsequent to that, the FDA is reaching out and communicating with Karl Storz directly. We're still remain uncertain on the timing. We're doing everything we can to support the process. For the Flex BLC discontinuation by Karl Storz , the phase down will continue through the rest of the year. I think, you know, from a modeling perspective or if you're thinking about Flex BLC units, you know, we've said roughly 15%. It is a calculated number of our total business. From 2022, it could actually be higher. We expect that to wash out by the end of the year.
That's the way we're looking at our business. We're working on the solutions for flexible cystoscopy, bringing it back to the market. It's probably likely gonna take one to two years beyond the sun setting of BLC, the end of this year. It's our goal to get greater control of this razor-razor blade model. What we are looking for, and working with, and speaking with our manufacturers who can produce flexible blue light scopes, that we'll be able to sell alongside with, with our Cysview or Hexvix. This solution is not just for the U.S., it's also for Europe. I will say, with an asterisk on the U.S., that the downclass or reclassification will be a important part of bringing Flex back into the market.
We believe that the simultaneous pathways of both the reclassification and the development of a future flexible blue light scope, state-of-the-art, will happen at the same time, and I think we'll actually meet it at the right moment. We believe that Flex is an important technology. It's gonna be increasingly important as new treatments come out in the market for BCG, refractory, and CIS patients. We see that the flexible market is as good as it was, and I will tell you that at the beginning of this year, we had 25 POs, thinking that More than half of them were gonna be installed in the 1st quarter. All of them were cancelled by Karl Storz when they announced the discontinuation.
We believe the growth and the interest and the momentum was building, and we think that the future demand will be quite, quite good. We will continue to update you as we make progress in that space. All right, we mentioned about the towers, you know 28% of the base now is Saphira. We are aware, and the reason what we're showing here is just the Rigid only because Flex is slowly being discontinued. We, we are aware of at least 10 flexible systems that have been returned in Q2. I can tell you there's been another handful so far this quarter that have also been returned. These returns, by the way, are returns for future discounts with Karl Storz equipment. There's many accounts that are just turning off the Flex once they break and stop using it.
We're not gonna track all this. Again, our, our assumption is that this is gonna the Flex units will wash out by the end of the year. For reference, there were 69 flexible cystoscopes installed in the U.S., and as I mentioned, we anticipated at the beginning of this year that there would be north of 35 installs this year of Flex. This is, you know, it's, it's bittersweet in the sense that we know the future and what we're doing strategically in finding a flexible scope that we can sell alongside our product is the right path forward, both for the U.S. and the EU. We look forward to make announcements on this in the coming months.
Turning our eyes to Europe, our revenues in Europe grew 14% in Q2, with a difficult comparison to last year's second quarter, pressured year-over-year unit sales results from the German stocking and the Omicron snapback. We showed modest growth, minus stocking. Recall the swing back in procedures after the Omicron surge in 2022 also raised the bar for this year. We got a very strong reception at EAU. We mentioned it in the Q1 presentation. It's, you know, I think it's worth reiterating since EAU happened in Q2. Our team was focused on image quality upgrades. Our team currently in Europe is focused on image quality upgrades to bring Blue Light into the twenty-first century. There have been 77 upgrades through so far throughout Europe.
We believe there's a whole new growth cycle for business throughout Europe that's beginning to evolve as they upgrade. You know, accounts don't upgrade and spend money unless they believe in it. Prior to us taking over Europe in the midst of COVID, there was no, you know, very low activity and interest in Europe. Now we've got 77 accounts so far this year that have upgraded their equipment. It's a major strategy for us to re-energize the base. There is new accounts, particularly in the U.K. that are popping up, you know, small amounts, but the major momentum is on the upgrades to bring the technology up.
This also includes the anticipated upgrade of Olympus blue light equipment, which, their official launch at this point, looks to be the end of Q1, at the EAU Congress, where they'll make a big splash about it. Certainly, they'll probably be like most device companies, some already installed out in the market. This is a new high-definition equipment, and, you know, keep in mind, Olympus has a stronghold on, the Danish and the Nordic and Norway as major, you know, strongholds for them. Getting this new equipment in the market will help us grow and begin, you know, energizing those markets as well. We look forward to that launch.
Flex for EU, just reminding, you know, additionally, you know, the same solution we're looking for the U.S. is a solution for the world. We'll be launching surveillance, most likely in Europe, like, you know, possibly in Europe first, but it's definitely launching, we'll launch in both, both regions. The final part I'll make is the German bus tour. We've talked about this in the past. This tour is organized from the September 4th to the October 2nd. It's stopping at the DGU Congress on the September 20th to the 23rd. There are already 20 stops, that's high demand. 20 stops being 20 hospitals, institutions that have requested the Blue Light bus show up. What it does?
It provides scientific programs, programs for patients and marketing activities, discussing the benefits of blue light technology in treatment of bladder cancer, diagnosis, and detection of bladder cancer. DACH, by far, is the most profitable region to date and our biggest contributor globally, continuously consistent, improved performance. We had 3% growth in 2022, and 7% growth in the first half of this year, and we see that continued growth rate through the rest of the year. Growth rates in Benelux is the first to turn around with excellent growth rate of 34% in the first half. Other markets throughout Europe have been a little bit slower, hampered by market conditions, but good pipeline underneath. We're expecting acceleration in the second half of this year.
France is our second-largest European market and has been improving image quality to date, despite the delayed volatile deliveries of equipment and budget constraints. We've had an installed base upgraded of about 16%. Of the accounts that are out there, 16% of them already installed better image equipment this year. We think the impacts will start coming to the second half of this year and through 2024. U.K., there's been a lot of strikes. There is orders for equipment, new accounts that we want to install, that it will resolve over time. Already, the buying customer base has already expanded by 10% through new installments and reactivations. In Italy, it's challenged by outdated equipment and it's really the only market that's still primarily standard definition.
It's a, you know. For the first time during the second half of the year, leading oncological one of the leading oncological universities are anticipated to use Hexvix, so we'll give further updates. What I guess my point being is, in all these European countries, now that we're getting full access, now that we're upgrading the equipment, the traction is beginning. I think we'll start seeing it through the second half of this year and certainly into 2024. Nordics will continue to be hampered by the old, outdated Olympus equipment, but as I said, they intend to launch the new equipment the end of first quarter next year. I think that's probably all I want to say about that. With that, I'm going to turn it over to the Q2 financials. Eirik?
Thank you, Dan. Well, I, I will give an overview of the second quarter financials, including the consolidated income statement. We'll look at the segment report, finally, we'll look at the cash flow and the balance sheet. Before we go into the details of the numbers, a few words about foreign exchange. As we all know, Norwegian kroner has depreciated significantly this year. The first six months, year-over-year, and measured by unweighted monthly averages, the U.S. dollar increased 14.6%, and euro increased 13.4%, it's significant. If you go from the percentages and into the financials, we have the year-over-year FX impact in Q2 for sales revenue was positive, approximately NOK 15 million. For COGS and operating expenses, it was negative, approximately NOK 12 million, that leaves an EBITDA positive, approximately NOK 3 million.
Year to date, the year-over-year impact was for sales revenue, positive, approximately NOK 26 million, COGS and operating expenses, negative NOK 22 million, and EBITDA, positive, approximately NOK 4 million. Just as one final remark before we dig into the numbers, when I discuss the financials, all amounts mentioned in this presentation are in Norwegian kroner, unless, obviously, I specify another currency. Let's talk about the numbers. We're looking at the consolidated income statement, and we'll start with the revenue, NOK 144.3 million in second quarter, which is an increase of NOK 44 million or 44% from Q2 2022. The main drivers were obviously the milestone payment from Asieris for Cevira, which was NOK 27 million, and we also had foreign exchange impact to approximately NOK 15 million, as well as an increased average selling price.
The average selling price was positively impacted by last year's price increase in Germany and the U.S., as well as the country mix between Europe and the U.S. Consolidated Hexvix Cysview revenue in Q2 increased 16%. Consolidated in-market unit sales decreased 3% year-over-year, which was impacted negatively by the phase down of Cysview usage in the Flex BLC setting in the U.S., as well as German hospital stocking last year ahead of a July price increase. Total operating expenses, and I exclude business development expenses first, it was NOK 104 million, the operating expenses, which is an increase of 18% from second quarter 2022. The increase is mainly driven by FX, a total of NOK 11 million. The remaining increase, approximately 5%, reflects the general inflation from second quarter last year to this year.
Business development expenses were minor in first quarter, but increased to NOK 9.6 million in the second quarter. Operating expenses within business development were related to lifecycle management for Hexvix Cysview. The activities are within the business side of lifecycle management, including potential collaborations. The expense level obviously may vary from quarter to quarter, given the one-off nature of these expenses. EBITDA second quarter of the business development expenses was NOK 23.4 million, which is an improvement of NOK 22 million from last year's second quarter. The improvement is revenue driven, both milestones and Hexvix Cysview. Currency impact included in EBITDA was approximately NOK 3 million positive for the quarter. Depreciation and amortization, NOK 6.6 million in second quarter. Main cost item is the amortization of the intangible asset related to the return of the European business from Ipsen.
Net financial items, in line with last year, we had NOK 4.9 million this year, NOK 4.5 million last year. Tax expenses, NOK 7.6 million for the quarter, the net tax expense is mainly driven by group results, but also intercompany items in the parent company. After net financial items and tax, we have for second quarter a net profit of NOK 4.3 million, compared to a net loss of NOK 18.5 million same period, 2022. The main drivers of this improvement is improved revenues, including milestones, combined with flat operating costs adjusted for FX and inflation. Now we go to the segment performance. Next slide. Thank you. Yeah, in the segment reporting, we will focus on the two main segments, which is obviously North America and Europe.
The North America segment includes U.S. and Canada. Revenue for North America increased 19% in the second quarter, and the drivers are an increase in market- in-market unit sales of 3%, as well as a 3% price increase second half of 2022. Furthermore, FX improvements were significant as the value of U.S. dollar appreciated 14% year-over-year. Second quarter, direct cost increased year-over-year with NOK 4.6 million, or 12%, the increase reflects the strengthening of U.S. dollar. In local currency, in dollars, we were flat or slightly negative. The contribution was break even, an improvement from same quarter last year and sequentially from Q1 this year. The improvement is revenue-driven, combined with flat operating costs in local currencies. EBITDA was negative NOK 10.3 million in the second quarter.
Looking at Europe, the European business, year-over-year, an increased revenue of 14%. This is very much driven by FX and price increases, partly offset by a decline in in-market unit sales. The decline in volume was expected, given the German stocking in second quarter last year. Sequentially from Q1, volume increased 6%. Direct cost increased year-over-year with NOK 1.3 million, or 5% in the second quarter, and this reflects an expense reduction in local currencies compared to second quarter last year. The expense development is partly driven by different phasing of activities over the year and between years. We ended second quarter with a contribution of NOK 37.6 million, compared to NOK 31 million last year.
The EBITDA for the second quarter was NOK 19.5 million, reflecting an EBITDA margin of 28%, compared to 26% second quarter last year. Next slide, please. Here, we're looking at the cash flow as well as the balance sheet. Net cash flow from operations in second quarter was NOK 29 million, compared to negative NOK 1.9 million second quarter last year. The improvement was mainly driven by the milestone from Asieris, as well as less impact from working capital. Cash flow from investment, second quarter, positive NOK 0.1 million, and cash flow from financing in second quarter was negative NOK 16.3 million, which is driven by the repayment of NOK 6.3 million of the term loan from Nordea and the Ipsen earn-out payment of NOK 8.1 million. The term loan from Nordea is now fully repaid.
That was fully repaid at the end of the second quarter. This gives us a net cash flow in second quarter, positive NOK 12.9 million, compared to negative NOK 12.4 million in second quarter last year. The year-over-year improvement is mainly driven by the milestone from Asieris, as well as less impact from working capital. With this cash flow, we end second quarter with a cash balance of NOK 259 million. Looking at the balance sheet, we end the quarter with total assets of NOK 707 million, and non-current assets was NOK 345 million at the end of the quarter, and this included customer relationship with NOK 121 million. The customer relationship is the intangible asset 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 NOK 46 million. Inventory and receivables were at NOK 102 million at the end of Q2, which was level with Q1. The increase from year and last year is driven by increased revenue. Long-term liabilities, NOK 162 million, include the earn-out liability related to the Ipsen transaction, totaling NOK 130 million at the end of the quarter. Finally, equity at the end of the quarter, NOK 467 million, which is 66% of total assets. This concludes the financial section. Thank you. Dan, it's back to you.
All right. Well, thank you, Erik. All right, let's wrap it up. In summary, 16% revenue growth, 2% unit sales, excluding the German stocking, which took place in July, in June and July. 9% sequential revenue growth despite the U.S. Flex phase-down. We've had 13 new Saphira installed. That gives us 28% of the base that are now Saphira. Eight were new, five were upgrades, reminding you that this took place in a quarter that Karl Storz did not have any kind of promotional incentive or accounts to purchase. However, they were aware and launched a new promotional program beginning July 1st, and in July alone, there were 40 quotes. 40 of those quotes turned into 12 new Blue Light Cystoscopy tower POs so far.
The quote flow continues to move forward as well as the PO process. Maybe it's a good time for me to just kind of mention the process in the sales cycle, because I think maybe this will get lost a little bit. After we've gotten the interest of, you know, a user, a urologist, urooncologist, the next step is to get them and the institution to agree they want to quote on pricing and the pieces of parts they want, so that they can bring that quote to the capital budgeting process within the hospital, which could be, could be scheduled ad hoc, or it could be already scheduled on a, on a calendar, including the value analysis committee and sometimes P&T.
After it moves through that process, and if approved, they will then issue a PO, to which Karl Storz can then apply, their, their shipping and then ultimately installation, training, and launch. We have been and will continue to only count towers where a patient has been treated. Even though there's a PO, and that means that pretty much that account will get a blue light scope, there can be a different lag for different accounts. Not until that account is actually, has a tower in it and treating a patient, do we count it here at Photocure. As I mentioned, Saphira is now 28% of the Rigid towers in the U.S., and there's a strong pipeline, and I think Karl Storz discounts are extremely helpful, in the driving the quick adoption of Blue Light Cystoscopy.
We had positive EBITDA of NOK 23.4 million, NOK 33 million excluding business development. I think importantly, the commercial business EBITDA is positive in the quarter. You know, reiterating off the first slide, we've had seven quarters in a row, minus FX and some other effects of basically flat expending. So we're, we're, we are gaining leverage out of our operations. We paid the term loan debt off in full in Q2, and our cash balance remains at NOK 259 million, which Erik just went through. We believe, and are seeing BLC awareness continuing to rise. We witnessed it at AUA and EAU. The KOL support is extremely strong. The engagement, I mean, just Citizen's Petition alone will show you the level of defense that they come to.
There was many who wrote in on the PHOTO trial when it hit the market that really supports Photocure and are great partners to us. You see all the equipment and the image quality upgrades that the manufacturers are going through, and the last one we're waiting on, of course, is Olympus, first quarter next year. You know, we're reiterating our guidance despite the Flex phase down, remaining staffing shortages, strikes in the EU, and of course, budgeting always remains a challenge in 2023, but we're going to stay with it. We have a potential reclass of BLC equipment, could unlock the market for Cysview in the U.S. in the future. As I went through the Q-Sub meeting that we had held, it seems like it, the FDA has taken notice.
Timing and ultimate decisions unknown, at least, we are on the radar for the FDA. I should say, Karl Storz is on the radar for the FDA. You know, finishing off with anticipated milestones and corporate objectives, reiterating the guide, 65 to 75 Saphira installs, product revenue growth above 20%, and generate a positive EBITDA in 2023. We'll continue to grow the base of blue light towers in North America. We'll continue to upgrade Blue Light Cystoscopy imaging throughout all of Europe. We believe both of those are key growth factors for those regions. We will, and I believe we will successfully, find a solution for flexible Blue Light Cystoscopy, look forward to announcing that in the future.
We're going to continue to proactively support the Citizen's Petition for the U.S. and do everything that we can do, you know, in support to help the reclassification or down classification. Again, this is a situation or a thing between Karl Storz and the FDA, but to the degree we can do and help and assist, we will. We'll continue to geographically expand our commercial business, penetrating of many of the untapped markets. As I mentioned earlier, many of the markets are now coming into their own. Benelux grew at a very nice rate in the first half of last year-- this year, and we expect to continue. We're looking for some of the other countries now who are gaining traction with the upgrades to begin their growth rates.
Now that, you know, the sort of COVID's behind us, the staffing, I think, is resolving, hopefully, the strikes that are taking place throughout the U.K., U.K., which is unprecedented of what's going on in the healthcare system there. I think we're in a great place with the KOL support. We'll continue to present and publish additional data. I guarantee you, you'll be very excited about some of the data coming out later this year and into next year. The event, we anticipate our partner, Asieris, with readouts on phase III data for both Hexvix and Saphira, here in the near future. I think we can turn it over to Q&A. David, over to you.
Okay, thanks, Dan. Appreciate it. We had a number of questions in the queue, pretty good amount. Let me start right from the top. The milestone for Saphira in the quarter, is that for the phase III results?
No, I said it was a time-based milestone. The way we had done the contract is they had to make progress along the way, and/or timeline. This was a 48-month milestone that they've owned the asset, and they continue to move forward, so they owe this milestone. The phase III results were coming. They're the next milestones, most of them had to do with filings and approvals, and then ultimately launch.
Okay, excellent. Onto the towers, do you have to compensate for both Flex towers declining as well as the legacy towers, the old standard definition towers going away?
Well, Flex for sure. The standard-definition going away is upgrades to Saphira. You know, they're upgrading those accounts to Saphira. That, that in itself is a step change in our hypothesis, which we, we promised in the future once we have enough robust data, we think we can prove that hypothesis that this high-definition, more reliable Saphira system will have better utilization than the old standard-def systems. There's a, you know, there's a, a challenge here when you're dealing with products like this and the measurement. This is why when I know everyone's eager to get that data on Saphira and what the impact is, I can tell you that it's impacting in Europe every time they upgrade their equipment in these different accounts.
I think you have to appreciate that we just recently had an account who bought 200 units. They have a Flex that they've reduced use on, and they have a Saphira. It's, it's, it's, you know, it's uncertain as to, you know, you know, when you buy it, you could buy 200 units just before getting a Saphira install and then not need units for two or three months. You got to let time elapse. You need more ro- robust datasets to really measure the impact of Saphira. On Flex, it, it- it's easy to measure the impact of Flex in Flex-only accounts, because that's the only thing they have. Every unit they buy is every unit that goes through Flex, and that's where we measured a negative 31% erosion of that business.
When we get to what we call dual accounts, these are accounts that can have, you know, two Rigids and two Flex, one Rigid and two Flex, two, you know, two Rigids, one Flex. The problem is, is they buy the units, and the units go, you know, to something, to one or the other. We don't know exactly. We try our best to triangulate. We ask the accounts, we use some business rules as best we can to sort of measure the impact of that erosion on our business. I think, you know. Again, depending on how you measure it, you know, the total amount of Flex usage in the U.S., we initially estimated at around 15% of our 2022 sales. It could be slightly higher than that.
But nonetheless, we think all of that will wash out by the end of the year. We will overcome it with Rigid growth.
Great. On the 10 Flex units that you mentioned that were returned to Karl Storz , are they able to be redeployed back into the market?
No, guys, they're, they're discontinued. Karl Storz isn't even providing equipment, or parts, or support, or service, or any of this. They're returning them because Karl Storz has said: "You know, if you return them, and you want to maintain being a customer of ours, we'll give you a discount on Saphira or some other system." No, once they're out, they're out. They're done. Now, what we, what we have done as Photocure is, you know, trying to do everything we possibly can do, controlling the uncontrollables as best we can do. We hired a third-party company called Agiliti, who is going out and doing the best they can to repair Flex and keep it moving in the accounts that, that really still do want to do Flex.
Even though Karl Storz may not support them, we're going to do what we can to support them, so best we can do. Yeah.
Here's a follow-up on the Saphira milestone. "This is the first time you've called it out specifically in a quarter. Does this mean you're more optimistic?" I will answer that by saying we have called out Saphira milestones before. In fact, in the fourth quarter, we had a $1 million milestone that was specifically in the report. I can say, of course, we're optimistic that the results are good, and as Dan said, we should see them later this year.
Yeah, and I'll add one more thing. You know, Saphira, Saphira is a Karl Storz 's product. That's where the information should come from as far as the program. We can't deliver any information beyond what they deliver because they're a public company as well. I will tell you, a major thesis on their initial public offering was based on Saphira, so they have a keen interest in the success of that program, and we're looking forward to seeing the results ourselves and what their next steps will be.
Okay. Moving to business development opportunities, one listener is asking: "When will we have news on the BD opportunity? Given the higher spend, when can we expect to be updated?
Yeah. Our focus now, I will, I will, you know, we had a broader focus, I think, last year. Our focus now is business development opportunities specific to Blue Light Cystoscopy, Cysview, and bladder cancer, in and around Blue Light Cystoscopy. You know, I think part of the business development is kind of the major project, which you all want to see us probably pull through, which is bringing blue light flexible scopes back to the market. And the intention is that we, you know, we have something that we can sell, that we have control over to some degree, alongside our Cysview, which is really the primary driver of revenues. That's where, you know, what you're seeing some of the, a lot of the business development, costs going into.
Because you can imagine, you know, working with other manufacturers, there's a lot of work that has to be done to figure out if it can be, if it can be done, and then there's agreements and, and all those things that have to be sewn up. I hope to be able to report something later this half.
Great. I have multiple questions from Rikard Anderkrans at Handelsbanken, so I'm going to take them one at a time. First one is, you know, can you offer some insights into your ability to get to the growth you need for your product revenue guidance, especially given the Flex phase down? You know, specifically, what are the key drivers of how you believe you can get there?
Continued installation of Rigid, I think is primary. The, the traction that Europe is gaining with, with, now having promotional effort throughout Europe and engagement with all the KOLs, as well as, you know, 77 upgrades so far this year. We see that rate continuing. The interest is very, very high. I see momentum building. It is, it is a challenge to get over that Flex erosion, and we don't, we don't know exactly what that number is. We've estimated that number, and we feel that estimate, where we are today, we can overcome it.
I think the other things that'll probably bode well is some of the data that we believe is going to be coming out, I think also, will also help solidify our position as, as, you know, the purpose and the importance of using blue light technology. I know there's something you guys can add along with what I've added. Maybe not? Okay.
I think we're good. Excellent. On the market, how is the volume of TURBT procedures developing in key markets? We've seen continued strong momentum in elective procedures in Q2, yet volume growth seems muted. What can you say about the TURBT market?
It seems to have sort of leveled off. We know we've had several years of decline, slight declines in TURBTs in the U.S. I'm going to speak about the U.S. Europe's a little bit more difficult to measure because it lags by a couple of years, but we do see it kind of leveling off at this point. At the same time, even though it was, you know, slight. These aren't rapid dissension, it's, you know, it's a slow, slow bleed over the last several years. We've continued to grow, so we've gained penetration/market share in, in a market that sort of has leveled off a little bit, but we see it kind of leveling out now. You know, will that change in the future?
I, I guess it's anybody's guess, you know, but, at this point, I think we can safely say it is where it is.
Yeah, perhaps with some of the new products that are coming to the market, you know, Merck's Keytruda and now UroGen's strong data. The, the interest certainly is building in the space.
Yeah
... so, but that's, that's where it is. Okay, good.
Let me add something, David. You just-
Sure
... said something. You know, the TURBT, I think, was kind of one of those procedures every physician's going to go do, and, and you did, because it was just kind of the thing. I think your point about there being these new therapies coming out, they're becoming more and more dependent upon accurate diagnosis. You know, the whole idea of precision medicine deserves precision diagnostics, precision diagnosis. The data is overwhelmingly in favor of Blue Light Cystoscopy in the detection, staging, and ultimately, the treatment pathways for patients. So as these new therapies hit the market, you know, I can tell you, we have conversations with them. They are highly interested in blue light, Blue Light Cystoscopy's role in helping them-- It's kind of like helping them be successful.
I'm really excited about this and where this is all developing and going, and there'll be more news on this in the future.
Excellent.
Mm-hmm.
What share of the U.S. and European installed base do you expect to have upgraded equipment by year-end? I don't know if we can answer that, but...
Well, I mean, we had 77 in the first half, hopefully another 77 in the second half or more. That will get you to well over a hundred and something, and that's of the 700-800 accounts, it's probably 25%. We're about 28% with Saphira so far. That's single manufacturer, but I think estimating that is tough right now.
Yeah. I mean, I think it's a good question. It's the first time we've gotten it, Rikard. I think it's fair for us to think about including an analysis for the next quarter.
I know our, our targets are well north of 100, and we're at 77 already, so...
Great. And his last question, which is repeated a couple of times, so I'll ask it here, is, you know, the business development expenses, you know, how should we think about those in the coming quarters? Kind of another question related is what was included in the business development line?
Erik, do you want to do that one?
Yeah, sure. I mean, looking at these expenses, by nature, this is one-off spending. You know, I, I can always calculate or, or communicate some kind of an average per quarter. I did that last quarter, saying that I would expect NOK 3 million-NOK 3.5 million per quarter. It, it will jump up and down, and it's, it's very hard to kind of estimate an exact number for the year. Right now, I'm, I'm really hesitant on, on, on, on giving an estimate for the year. I told you before, Rickard, that, you know, you could, as an example, use NOK 3.5 million, NOK 3 million-NOK 3.5 million for the remaining two quarters, by quarter, as an estimate. These expenses will jump up and down.
In terms of, I think, I think we already touched on, on what type of activities is behind the, the business development expenses. This is not traditional business development. This is really partnering with other organization, potential collaborations, and we're looking at adjacent products. Dan mentioned various activities that, that we have included, so it's a number of activities that we're working on.
Okay, moving on. What about AI? How do you see that impacting blue light and the field of other technologies?
The intelligence submission. Well, I mean, AI is, they haven't figured out how they're gonna approve it in the first place. They'll have to come up with that. It's probably gonna come. We are talking with AI companies ourselves. You know, it's interesting, some of the things you read out there. I think it'll probably be inevitable. Our goal is to make sure that if AI algorithms are out there, that the AI algorithms incorporate blue light. Theoretically, white light finds something, AI white light or blue light finds something more. AI finds maybe as much as blue light, blue light AI finds even more. I don't know. It's not a fair, it's not really a fair question today. I think we'd save it for a different-.
Yeah
...meeting.
Gotcha. Okay, let's see. I guess the last question is, do you have any insights into the timing of down classification?
No. No, the only thing I'd say is what I've said already, which is we believe we have the FDA's interest in here. They are having a communication with Karl Storz . The fact that 16 people showed up at a Q-Sub on a late Friday of a holiday weekend to hear the story of blue light cystoscopy, Class III, discontinuation of Flex, the safety of Cysview and the procedure itself, I think, you know, is a good sign that it's got their attention. I can tell you that, you know, we're not the only product out there, or, you know, that blue light scopes are not the only product out there petitioning for a reclassification. There's many, many of them out there.
The FDA only has so much bandwidth, and the fact that they put 16 people times, you know, one hour each, you know, 16 hours of effort just to meet with us, and now they're going and having a conversation with Karl Storz , I think, you know. They, they admittedly, we did ask a question around the CP, Citizen's Petition, and they said that is between them and Karl Storz . So, you know, you got to appreciate, we're like, the, the, the third party here, the little annoying kid who keeps, you know, pushing Mom and Dad, but we're gonna continue down it. We're not gonna give up. We're gonna. You know, the unorthodox approach of going to the Q-Sub, I think, is testament to the grit that this company continues to push through with many challenges.
Excellent. All right, well, we'll wrap up the Q&A session right here. Thanks, everyone, for your contributions to that.
Thank you.
Yeah.
That's it. I, I look forward to speaking everybody. I think it's in early November for the Q3. Have a great day.