NovoCure Ltd. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. NovoCure develops and commercializes Tumor Treating Fields (TTFields) systems, including Optune for glioblastoma and Optune Lua for mesothelioma, and is advancing clinical trials in additional solid tumors. Figures below are in U.S. dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $133.6 million | $132.7 million | $401.8 million | $350.4 million |
| Gross profit / margin | $103.4 million / 77% | $104.3 million / 79% | $316.6 million / 79% | $272.0 million / 78% |
| Operating expenses | $112.0 million | $89.2 million | $337.6 million | $253.7 million |
| Operating income (loss) | $(8.6) million | $15.0 million | $(20.9) million | $18.3 million |
| Net income (loss) | $(13.1) million | $9.3 million | $(31.9) million | $14.9 million |
| Adjusted EBITDA | $19.9 million | $37.3 million | $59.2 million | $80.4 million |
| Operating cash flow | $24.4 million | $31.0 million | $68.4 million | $45.7 million |
Balance sheet and liquidity
- At September 30, 2021, cash and cash equivalents were $689.8 million and short-term investments were $243.9 million, or $933.8 million combined. Management said these resources were sufficient for at least the next 12 months under its existing plan.
- Total liabilities were $707.3 million; long-term debt, net, was $561.4 million. This principally reflects $575.0 million of 0% convertible senior notes due 2025. The company had no borrowings under its $150 million revolving credit facility and reported compliance with its covenants.
- For the first nine months, cash, cash equivalents and restricted cash increased by $444.5 million. Investing cash flow included net proceeds from short-term investment maturities; operating cash flow was $68.4 million.
Material changes and operating trends
- Revenue grew 1% year over year in Q3 and 15% for the first nine months. Management attributed growth mainly to more active patients in established markets and the Optune launch in China. Active patients totaled 3,502 at quarter-end, up from 3,361 a year earlier.
- Q3 revenue growth was modest in part because the company recorded only minimal revenue from appeals of previously denied Medicare claims, compared with $8.0 million in Q3 2020. Payments from such appeals remain unpredictable.
- Research, development and clinical-trial expense rose 47% in Q3 and 64% year to date, reflecting pivotal and label-expansion trials, product development, preclinical research and medical affairs. Total operating expenses rose 25% in Q3 and 33% year to date.
- Q3 gross margin declined to 77% from 79%, partly due to higher purchases by Zai Lab. Excluding Zai sales, cost of revenue per active patient per month fell 6% year over year in both the quarter and nine-month period.
- Adjusted EBITDA fell 47% in Q3 and 26% year to date, as investment in research and development and commercial readiness increased. The company reported Q3 Adjusted EBITDA margin of 15%.
Outlook, risks and notable items
- The filing provides no quantified revenue or earnings guidance. Management expects research, development and clinical-trial, sales and marketing, and general and administrative expenses to continue increasing and potentially outpace gross profit; it said additional capital may be needed over time.
- Management said COVID-19 had not materially affected financial results through Q3, but continued to cause regional volatility in patient volumes and care patterns, and challenges for customer engagement, trial enrollment, study operations and regulatory responsiveness.
- Clinical pipeline developments included an expected 2022 readout for the LUNAR NSCLC trial following a protocol adjustment; the DMC recommended reducing planned enrollment after an interim review. Final data for the ovarian INNOVATE-3 trial were anticipated in 2023. PANOVA-3 timing was pushed to 2024, in part due to nab-paclitaxel supply constraints and inability to expand the trial into Greater China.
- The company reported FDA breakthrough-device designation for its TTFields system intended for first-line liver cancer treatment, and collaborations involving pancreatic cancer and recurrent glioblastoma. These are development programs, not approvals for those uses.
- Early adoption of accounting standard ASU 2020-06 on January 1, 2021 increased reported long-term debt by $129.0 million and reduced additional paid-in capital by $132.5 million, with a $3.5 million reduction in accumulated deficit. The change is accounting-related; the notes’ principal remained $575.0 million.
- The filing reported no material changes to previously disclosed risk factors or contractual obligations, no off-balance-sheet arrangements, and no legal proceedings expected by management to materially affect financial position or results.
Key facts for investors to verify
- Whether patient growth and revenue acceleration continue, particularly as Medicare patient mix shifts toward patients covered under the current policy and appeal receipts fluctuate.
- Whether elevated clinical and commercial spending produces trial progress, approvals, reimbursement access and sustainable margins.
- Trial milestones and risks, including LUNAR’s 2022 data timing, supply constraints affecting PANOVA-3, and the stated 2023 and 2024 readout expectations.
- Cash use and financing needs against management’s 12-month liquidity assessment, including the $575 million convertible notes due 2025 and potential future capital requirements.
- How COVID-19 and other operational or supply disruptions affect patient volumes, clinical trials and commercialization across regions.