NovoCure Limited — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are U.S. dollars unless noted. NovoCure develops and commercializes Tumor Treating Fields (TTFields) products, primarily Optune for glioblastoma and Optune Lua for mesothelioma.
Financial performance and liquidity
- Q3 revenue: $127.3 million, down 3% from $131.0 million a year earlier. Nine-month revenue: $375.6 million, down 8% from $409.4 million.
- Profitability: Q3 gross profit was $95.2 million, with a 75% gross margin versus 77% in Q3 2022. Operating loss was $58.2 million and net loss was $49.5 million, compared with losses of $24.6 million and $26.6 million, respectively, a year earlier. Nine-month net loss was $160.0 million versus $55.2 million.
- Operating expenses: Q3 expenses totaled $153.5 million, up 22%. Research and clinical costs were $53.6 million, sales and marketing $58.0 million, and general and administrative $41.9 million. Nine-month expenses increased 25% to $461.0 million.
- Adjusted EBITDA: Loss of $29.1 million in Q3 versus income of $4.4 million in Q3 2022; nine-month loss of $74.7 million versus income of $38.6 million. This is a non-GAAP measure.
- Cash flow: Operating activities used $58.8 million in the first nine months, versus $34.5 million provided in the prior-year period. Investing activities provided $85.6 million, principally reflecting net maturities of short-term investments. Cash, cash equivalents and restricted cash were $156.5 million at quarter-end.
- Liquidity and debt: Cash, cash equivalents and short-term investments totaled $921.2 million at September 30, down from $969.4 million at year-end 2022. Long-term debt, net, was $568.0 million, representing $575.0 million principal of 0% convertible notes due November 2025. Management said available funds should support operations for at least 12 months.
Material changes and operating trends
- Management attributed lower revenue mainly to reduced U.S. collections on denied or appealed claims: $14.5 million in Q3 and $41.9 million for the first nine months. Improved reimbursement approval rates in Germany and the France launch partly offset the declines. Management said remaining older claims may take time to collect and their collection timing and amount are difficult to predict.
- Active patients at quarter-end were 3,639 versus 3,420 a year earlier. U.S. patients were 2,179 versus 2,181; growth came principally from “Others,” while Germany increased to 492 from 468. Prescriptions received were 1,467 in Q3 versus 1,389.
- Q3 cost of revenues rose 8%; the company cited added patient-support capacity and next-generation arrays. Nine-month gross margin declined to 75% from 79%.
- Higher commercial, geographic-expansion and pre-launch spending drove much of the expense growth. Share-based compensation was $26.3 million in Q3 and $98.2 million for nine months.
- Financial income was $10.0 million in Q3 and $27.9 million for nine months, primarily reflecting increased interest income; it partly offset operating losses.
Outlook, developments and risks
- No specific revenue or earnings guidance is provided. Management expects operating expenses to continue increasing as it expands into additional indications, and says they may outpace gross profit. It may need additional capital to fund operations.
- The Phase 3 LUNAR study in metastatic non-small cell lung cancer met its primary endpoint, reporting median overall survival of 13.2 months with TTFields plus standard therapy versus 9.9 months with standard therapy alone. The filing said results were expected to support an FDA PMA submission in the second half of 2023.
- Phase 3 INNOVATE-3 in platinum-resistant ovarian cancer did not meet its overall-survival primary endpoint; further evaluation, including subgroup analyses, was ongoing. METIS top-line data were anticipated in Q1 2024; PANOVA-3 data review was expected in 2024.
- The company reported a putative securities class action filed in June 2023 concerning statements about LUNAR results. It considers the case without merit, intends to defend it, and had not accrued a liability because it did not consider loss probable or reasonably estimable.
- After quarter-end, the company said the Israel conflict presented no immediate risk to facilities or operations as of the filing date, while it was increasing supply stocks to mitigate potential supplier and distribution disruptions. It also noted potential delays to FDA reviews if U.S. government funding lapsed.
- The $150 million revolving credit facility was terminated effective February 22, 2023; no amount was outstanding. Management reported no material change to previously disclosed risk factors and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether U.S. denied and appealed claims are ultimately collected, and how quickly, alongside changes in reimbursement and realized revenue per patient.
- Whether patient and prescription trends translate into sustained revenue growth and improved gross margins as support costs and new arrays scale.
- Timing, regulatory outcome and commercial potential of the LUNAR PMA submission, and forthcoming clinical readouts, including METIS and PANOVA-3.
- Cash burn, planned expansion spending and financing needs relative to management’s stated 12-month liquidity outlook; note the $575 million notes mature in 2025.
- Developments in the LUNAR-related securities litigation and any effects of geopolitical or supplier disruption on operations.