NovoCure Limited — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. NovoCure develops and commercializes Tumor Treating Fields (TTFields) devices, principally Optune for glioblastoma and Optune Lua for malignant pleural mesothelioma. Amounts below are U.S. dollars; financial figures are in millions unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $131.0 | $133.6 | $409.4 | $401.8 |
| Gross profit / margin | $101.2 / 77% | $103.4 / 77% | $323.4 / 79% | $316.6 / 79% |
| Operating expenses | $125.9 | $112.0 | $370.0 | $337.6 |
| Operating loss | $(24.6) | $(8.6) | $(46.5) | $(20.9) |
| Net loss | $(26.6) | $(13.1) | $(55.2) | $(31.9) |
| Adjusted EBITDA (non-GAAP) | $4.4 | $19.9 | $38.6 | $59.2 |
- Q3 revenue declined 2%; nine-month revenue increased 2%. Management attributed Q3 weakness mainly to lower German approval rates following updated coverage criteria and foreign-exchange movements. Nine-month growth primarily reflected U.S. collections on previously denied and appealed claims, partly offset by lower current-period German revenue and adjustments to prior-period receivables.
- Higher research and clinical spending and sales and marketing drove the wider losses. Nine-month R&D and clinical costs rose 5% to $151.3 million; sales and marketing rose 26% to $124.0 million. Management linked commercial spending increases to preparation for potential new indications and market-access work.
- At September 30, cash and cash equivalents were $243.8 million and short-term investments were $726.5 million, totaling $970.3 million. Current assets were $1,102.4 million and current liabilities $141.1 million.
- Operating cash flow was $34.5 million for the first nine months, versus $68.4 million a year earlier. Capital spending was $14.9 million. Cash, cash equivalents and restricted cash increased $34.4 million over the nine-month period.
- Long-term debt, net, was $564.7 million, representing the carrying value of $575.0 million of 0% convertible notes due 2025. The $150.0 million revolving credit facility had no borrowings outstanding; the company reported compliance with its covenants.
Changes and operating indicators
- Active patients on therapy totaled 3,420 at quarter-end, compared with 3,502 a year earlier. Q3 prescriptions received were 1,389, versus 1,380.
- Q3 net loss per share was $0.25, compared with $0.13; nine-month loss per share was $0.53, compared with $0.31.
- Q3 adjusted EBITDA fell 78% year over year and nine-month adjusted EBITDA fell 35%, primarily reflecting increased investment in R&D, clinical studies, and sales and marketing.
- Management said the most accessible U.S. denied-claim receivables would largely be exhausted in 2022; collection timing and amounts are unpredictable, and remaining claims may require more time and effort.
Outlook, developments and risks
- No quantified revenue or earnings guidance is provided. Management said available cash, cash equivalents and short-term investments were expected to fund operations for at least 12 months under the existing business plan, while expenses may continue to rise and outpace gross profit; additional capital could be needed.
- The company expected top-line results from the completed-enrollment LUNAR Phase 3 trial in early Q1 2023. It expected to complete METIS enrollment in Q1 2023, with top-line data anticipated in Q1 2024. INNOVATE-3 data were expected in 2023 following the required follow-up period.
- The company reported that the INNOVATE-3 interim review did not require a sample-size increase and the study would continue as planned. It also reported preliminary EF-31 gastric-cancer and EF-33 higher-intensity-array pilot findings; these are early-stage results, not confirmatory evidence.
- A material regulatory execution risk concerns renewal of the EU CE Certificate for Optune under the Medical Device Regulation. The notified body had a renewal backlog; the company said its application had passed technical review and that it was procuring inventory to reduce disruption risk, but could not assure renewal before existing inventory was depleted.
- Other uncertainties include reimbursement and collections, foreign-exchange volatility, clinical-trial outcomes, regulatory approvals for additional indications, and potential disruption to operations or studies from COVID-19. The company said COVID-19 had not materially affected financial results through Q3, but disruptions could persist.
- The company reported no material changes to previously disclosed risk factors other than the MDR-related CE renewal risk, no material change in internal controls, and no legal proceedings expected by management to materially affect financial position or results.
Important facts for investors to verify
- Progress and timing of CE Certificate renewal, and whether inventory levels avoided any European sales interruption.
- German coverage approval trends and the collection pace and recoverability of denied U.S. claims.
- Enrollment, readout timing and outcomes for LUNAR, METIS, INNOVATE-3 and other pivotal studies.
- Whether cash generation and liquidity remain adequate as operating expenses rise; note the $575 million principal maturity of the 2025 convertible notes.
- How patient counts, prescriptions, reimbursement access and foreign-exchange movements translate into recurring revenue growth.