NovoCure Limited — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Amounts are U.S. dollars unless noted. NovoCure develops and commercializes Tumor Treating Fields (TTFields) devices, including Optune for glioblastoma and Optune Lua for malignant pleural mesothelioma, while investing in additional cancer indications.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $122.2 million | $137.5 million |
| Gross profit / gross margin | $92.6 million / 76% | $109.8 million / 80% |
| Operating loss | $60.2 million | $0.8 million |
| Net loss | $53.1 million | $4.6 million |
| Loss per ordinary share, diluted | $0.50 | $0.04 |
| Adjusted EBITDA (non-GAAP) | Loss of $18.4 million | Income of $26.8 million |
| Operating cash flow | Use of $16.7 million | Use of $3.7 million |
Operating expenses rose 38% to $152.8 million: research and clinical costs increased 41% to $59.7 million, sales and marketing rose 35% to $51.2 million, and general and administrative costs increased 37% to $41.9 million. Share-based compensation was $39.1 million, up from $25.0 million.
Liquidity and debt
At March 31, 2023, cash, cash equivalents and short-term investments totaled $958.0 million, compared with $969.4 million at year-end 2022. Cash, cash equivalents and restricted cash were $186.6 million. Current assets were $1.089 billion and current liabilities were $148.8 million. Long-term debt, net, was $566.3 million, representing the carrying value of $575 million principal of 0% convertible notes due 2025. The notes were not convertible as of quarter-end. The company terminated its unused $150 million revolving credit facility effective February 22, 2023, with no termination fee or outstanding borrowings.
Investing activities provided $82.3 million, primarily reflecting net maturities of short-term investments; financing activities provided $5.2 million, mainly from option exercises. The company reported an accumulated deficit of $831.5 million.
Material changes and business developments
- Revenue declined 11% year over year. Management attributed the decrease primarily to $5.4 million less in collections from previously denied or appealed U.S. claims, a $2.1 million negative impact from German payer contract negotiations, and 82 fewer global active patients.
- Active patients at quarter-end were 3,467, down from 3,549 a year earlier; prescriptions received were 1,496, up from 1,384. U.S. active patients were 2,168 versus 2,257, while Japan rose to 382 from 327.
- Gross margin fell to 76% from 80%. Cost of revenue increased 7%, reflecting expanded patient-support capacity and higher equipment shipments to Zai Lab. Excluding Zai sales, cost of revenue per active patient per month increased 8% to $2,608.
- Net financial income was $9.2 million, versus $1.7 million of expense a year earlier, mainly due to higher interest income and foreign-exchange movements.
- Optune became reimbursable and available for newly diagnosed GBM patients in France in March 2023. The company reported positive top-line LUNAR study results in non-small cell lung cancer (NSCLC); full results were expected at an oncology conference in June 2023. Enrollment in the METIS brain-metastases study was complete, with final data anticipated in 2024.
Outlook, commentary and risks
No specific revenue or earnings guidance is provided. Management said available cash, cash equivalents and short-term investments should fund operations for at least the next 12 months under its current plan and ability to manage the timing of significant commitments. It also expects operating expenses to continue increasing and potentially outpace gross profit as it prepares for additional indications; additional capital may therefore be needed.
Management expects future revenue to more closely reflect active patients, time on therapy and realized monthly price as collections from older denied claims diminish. It continues to pursue remaining claims, but their timing and amounts are difficult to predict. The filing also identifies risks involving reimbursement and payer access, market adoption, clinical and regulatory outcomes, manufacturing and supply, and disruptions to healthcare systems and clinical studies. Management said COVID-19 had not materially affected Q1 financial results but could continue to disrupt operations and studies. Ordinary-course legal matters were not expected by management to materially affect financial position or results.
Important facts for investors to verify
- Whether revenue and collections stabilize after reduced recoveries of previously denied U.S. claims and German payer contract changes.
- Trends in active patients, new prescriptions, treatment duration, and realized price by geography and indication.
- Whether spending growth and weaker gross margin persist as commercial expansion and clinical programs advance.
- Progress, complete results and regulatory implications of LUNAR and other pivotal studies, including METIS and PANOVA-3.
- Cash use, liquidity relative to management’s 12-month estimate, and any need for additional financing ahead of the 2025 convertible-note maturity.